How Silicon Valley’s venture capitalists spot winners, make millions and come back for more

Have you ever wondered what makes a venture capitalist tick? At the recent NetEvents Silicon Valley press and analyst event a fascinating debate took place among leading venture capitalists about what they look for, how they identify it and how they make money out of it – with real insights into how they build Unicorns

Senior Editor Bill Boyle


anek Dubash of NetEvents moderated the debate, and kicked off with this question: “Do you believe in the concept of unicorns or is it actually all marketing? One

study by the National Bureau of Economic Research, suggests the number of unicorns invested in this year went from 53 down to 11. This suggests the numbers are declining. Is that what you’re finding?”

Cack Wilhelm: “If you think about what is a venture evaluation, it’s one milestone in the course of a company growing and a company might take 10 or 15 years to go public or exit. Arbitrarily hitting the billion- dollar evaluation mark, that’s just saying that just one person, one firm, one partner, has bestowed upon you the billion dollar evaluation. What is more interesting is companies hitting milestones like $10 million in revenue, $100 million in revenue, going public on a publicly listed stock exchange. The last two quarters there have been a lot of public exits and the majority have priced higher than they intended and they’ve been trading higher than they’re priced.That is more interesting than how many companies will be crowned unicorns.”

Victor Chen: “If you look a little bit longer term, what really excites me isn’t the fact that there will be more unicorns created, but that there will be more companies that are creating billions of dollars of value from displacing existing infrastructure or offering sort of net new value to its users. You can see that across a variety of fields. Blockchain and artificial intelligence are re-platforming what we would normally think of as legacy or normal infrastructure. Then as you look, even in the sort of things that exist today, there are a lot of different categories that can create billions of dollars of value that are still widely unaddressed today.”

Hiro Rio Maeda: “I want to give you one or two cases that came to my eyes. One is in a portfolio of ours: last year it was valued as a unicorn with over $1 billion valuations and that was in hyper converged infrastructure. It’s basically the storage in the network and the company got bought by HP last year. At that time the definition of unicorn doesn’t

matter for the buyer. They just go through and scrutinise the number and try to come out with the right valuation and it came down to $600 million. Another example that went public in Japan was a company called Heroes which today values around $1 billion to $1.3 billion. The company’s yearly revenue is $8 million.”

MD: “Over recent years, we’ve seen quite a backlash of issues like data privacy. The public view of technology is shifting. Is that affecting the sorts of criteria that you’re using for investment?”

VC: “As a firm that’s an associate of Alphabet we are very focused on this. The market is really a two-player space right now when it comes to Facebook and Google. The customers are the ultimate people who drive the business and the customers in this case are advert buyers. These guys have been starved for solutions by the traditional print media for years. Most of their businesses are now dependent on Facebook and Google to grow. From that perspective what excites me is that there are a lot of different opportunities for young players who pop up who try to offer more value to those advertisers that drive business and that would create more opportunity going forward.”

HRM: “GDPR is creating enormous impact both in the large corporations and start-ups; in a positive way for start-ups. For the large corporations, for the last two to five years, machine learning and AI-based application and analytics became so powerful that enterprises have been adopting them in a very accelerated way. They’re hiring data scientists right, left and centre. Amazon is opening 1,100 jobs for AI and data scientists, spending $200 million on its hiring. They hired those people and started to crunch the data but then this whole privacy scandal happened and they were trying to block everything and not letting it be touched by the data scientists. There is a very interesting emerging market that’s coming out of those backlashes.”

CW: “What markets are going to emerge? I would argue broadly that | © IBS Intelligence 2018

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