Deal Opacity


This post is by Semil Shah from Haystack.vc


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When I moved back to the Bay Area in early 2011, the technology and startup sector didn’t feel as big or expansive as it does today. In that time, Twitter was just getting its sea legs, the Quora private beta was one of the hottest tickets in town, and TechCrunch was the de facto powerhouse in tech/startup media attention. During this time, when we didn’t really understand the stakes of what technology would hold for us all, it was relatively easy to know the investments made by the top VC funds — they’d either announce them on TechCrunch, or the early reporters at TechCrunch would somehow find out which deals were hotly contested and doing well.

Back then, there were fewer deals, smaller funds, and relatively speaking, more deal transparency.

Now, contrast 2011 with 2019, and we have an entirely different situation. Today, the stakes related to technology investment known worldwide. Every single megafund all the way to some of the world’s most powerful sovereign wealth funds are now searching for the next Uber, either so they can invest directly or so one of their managers can ensnare it in its flytrap. And, with respect to deal transparency — it is basically gone, drowned out.

We now live in a world of relative deal opacity where very few people know and track the moves of the best technology and startup investment firms. I’ve been trying to think of “why” did this change happen, and also what the change means. Briefly, here’s what I’ve come up with:

1/ Erosion Of Crunchbase: It used to be that CrunchBase, which was created out of TechCrunch, was kept up to date with company information and investor participation. It was close to a single source of deal truth. People used to write basic apps to be able to get CrunchBase data on their phones. Then, TechCrunch was acquired by AOL (now “Oath,” or whatever – I can’t remember), and the product wasn’t able to keep up with the times and explosion of companies. The team valiantly tried to rebuild it, but too much time passed, and then eventually CrunchBase spun out into a private company which was then funded by Emergence Capital, which is attempting to build it into a much larger enterprise data product, holding competing information with Pitchbook, CBInsights, and others.

2/ Expansion Of Private Markets: Now every company is a startup. Every company is a tech company. Technology is spreading into every corner of the company. Every investor needs exposure to technology, and the earlier – the better. More money in the ecosystem is searching for these opportunities, or funding competitors. This all has compounding effects leading to more deal opacity, which I outline in more detail below.

3/ Carta Just Starting Out: One of the main opportunities for Carta (formerly eShares) is to pick up where CrunchBase left off, but more from the cap table as a starting point. This is important because lots of people (especially investors) fudge the truth about when they invested in a company, and how much in terms of percentage ownership. It’s a long slog that Carta is moving toward, and they are in a great position, but it will still take time for everyone and every important deal to be on this platform.

4/ Technology And Startup Fatigue: I can’t prove it, but I do believe the constant barrage of technology and startup news has forced some founders and investors to avoid any attention, period. In these cases, they’re less excited about announcing their rounds, or just want to wait for the big reveal, when something important happens, or a big milestone is reached.

5/ Copycat Culture And Stealth Mode Back En Vogue: I’ve alluded to this above and below, but now when a category gets hot, founders and capital flood it. So for teams who are early and/or disciplined about the environment, there’s little incentive to making big waves in the press.

OK, so what does this all mean, does it matter that the premium deals being done are more opaque?

In some regards, it doesn’t mean much. No big deal. In other ways, it is a significant change. As private markets expand and technology seeps through every sector transforming every company into a technology company, there are more investment firms across private equity who want to invest earlier, who want to invest closer to the point of innovation. And, many of these firms would love nothing better than to cherry pick from the portfolios of the best venture brands out there. And founders, who see competitors left and right getting propped up pre-traction with $100M+ rounds are not eager to publicize exactly what they’re working on, let alone their capital partners — until the time is exactly right.

I know a much smaller version of this phenomenon because I experienced it myself. I used to list every company I was an investor in. Now I do not. That is not to say every company I invest in will automatically be huge (I wish it were true!), but what started to happen is that investors from Series A firms all the way to growth investors would bombard the companies we invested in with offers of extra cash or wanting to extract information from the teams. I found that to be a huge distraction for the teams and myself, and I don’t blame founders, it’s easy to be seduced by the friendly inbound call. Nowadays, I keep a dynamic list of LPs and partners that I share our deal information with, and I don’t publish it on my site. Eventually the best companies will find their best partners when they’re ready.

Today in 2019, this deal information among the top VC brands is only really moving through smaller, trusted networks. Yes, LPs in these funds have information in terms of new companies, check size, and ownership, but not much more. Once a year, they may hear about a few companies or meet the founders at the annual meeting. Folks who are in the Bay Area, active angels and/or seed investors with larger portfolios, and a few select others have a way to know which top firms are doing which deals, but I would argue it’s considerably more opaque than the previous era, and no one has devised a great system for tracking this information.

In summary, the signal that used to be generated from a competitive deal is now hidden, obscured, and muffled. That’s how the investors and the founders often want it to be in 2019. Why invite the competition? Why invite more unsolicited inbound? Why invite the noise? I can’t blame them.