Mark Suster, a partner at L.A.’s largest venture capital firm, Upfront Ventures in Santa Monica, has warned that a major correction could be coming to the tech financing market.
In a blog posted Monday, Suster argued that “outsiders,” including hedge funds and mutual funds, have poured too much money into the industry. And since those companies judge success differently than venture capital firms, startups will not be able to burn through cash in the way many have grown accustomed to.
“Much has changed in the past four months of the technology startup world and how outsiders value the business,” Suster wrote. “Of course, it’s too early to predict whether this is a trend or an aberration, but the smartest people I know in the industry are predicting the former. The startup industry may be ‘resetting,’ which doesn’t mean a ‘crash,’ but rather just a resetting of valuations, timescales, winners/losers, capital sources and the relative emphasis of growth rates vs. burn rates.”
With the stock market dropping and troubling news out of China, Suster has made some dire predictions. For example, Suster said in an early January Facebook post that a "bloodbath" could arrive for angel investors who typically put $25,000 or $50,000 into a startup company.
Suster outlined many of the same concerns at last week’s Upfront Summit in Hollywood and in a profile published in L.A. Weekly on Tuesday.