Follow Crunchbase News on

Allegedly at the behest of Crown Prince , a 15-person Saudi hit squad illegally detained, tortured, murdered, dismembered, and attempted to dissolve the remains of dissident and in Turkey .

That act catalyzed a sovereign wealth crisis in venture capital and private equity that I expect to play itself out over the course of next year.

Of course, we don’t know how it’s all going to shake out, but here are some predictions for 2019:

• The Positive: Investors, founders, and the general public will continue to make associations between state-backed capital with state-sanctioned actions that run counter to their political and ethical values.
• The Cynical: No single state action, however odious, will make the entire market turn away capital from a sufficiently large sovereign wealth fund.
• The Unlikely: U.S.-led sanctions on Saudi Arabia, either under the or other law, would severely damage the late-stage funding market. However, given and between the U.S. president’s son-in-law Jared Kushner and the crown prince, such a sanctions regime is unlikely under the current administration.

Let’s unpack this a bit.

What do founders do with the money they’ve raised from sovereign wealth funds represented by characters more unsavory than previously thought? What are you going to do, give the money back? Whatever hasn’t been spent has already been allocated.

And when you’re raising capital at a scale that’s worth a sovereign wealth fund’s consideration, you don’t have many other money wells to draw from.

Fund managers find themselves in the same pickle. So let’s say you’re the SoftBank Vision Fund, and it turns out that of your anchor limited partner, , is a chap who got a guy broken and butchered in Istanbul. Well, you’re probably not going to return their uninvested capital, and you’re definitely not going unwind prior investments backed, in part, by that capital. In November, TechCrunch SoftBank CEO as saying, “Before this tragic case happened, we had already accepted a responsibility to the people of Saudi Arabia to help them manage their financial resources, and we can’t all of a sudden drop such responsibility.”

But you could totally spin it as the investment equivalent of a one-time fling. Both parties could just go their separate ways. In November, Son said SoftBank “would like to carefully watch the outcome of the case and once the explanation is fully made then we will think about it once again.” At the start of December, that the CIA is in possession of messages tying Mohammed bin Salman to Khashoggi’s murder. With the window of reasonable doubt closing, the feasibility of Vision Fund II becomes even more uncertain.

And amid all this geopolitical pressure, Softbank’s Vision Fund, and other large funds, must also prove that huge direct investments can generate outsized returns.

Model Validation & Last Grasps At Growth

The amount of capital that’s about to get liquidity through IPOs next year is truly bananas, and some of it is from direct investments by government-backed funds. Two of the most hotly-anticipated debuts, Uber and Lyft, have both received direct backing from government sources.

Here are some predictions for how the market might react:

• Validation: Favorable exit multiples generated from direct investments in late-stage technology companies will validate that investment strategy.
• Replication: Attempting to chase others’ success, other sovereign wealth funds, which may not have previously invested in venture at all, will make their first direct investments in private technology companies in 2019. Longtime investors will accelerate capital deployment.
• Desperation: As global economic growth slows down toward the end of a historic economic growth cycle, large fund managers may attempt to goose returns by investing more in high-growth private technology company equity.

Granted, all the above assumes that public markets remain reasonably stable. To be fair, this is shaping up to be a pretty big assumption. If 2019’s ticker tape reads like Q4 2018, all bets are off.

Global Influence In Global Markets

Giant venture rounds led by government-backed entities like the Vision Fund, , , and others have already bent the shape of private-market fundraising for founders and venture funds alike, as we’ve covered extensively in the past.

To the extent that the market is in a bubble today, sovereign wealth has helped to inflate and prop it up. Deep-pocketed SWF investors have helped to reshape private markets like VC, but it’s also influenced public tech companies this year.

To that latter point, —with Saudi backing which ultimately beyond in the electric automaker—as an example of sovereign wealth bending the public market upward.

Musk’s infamous “funding secured” tweet and on August 7th, followed up by that expressly mentions Saudi interest in financing the over $70 billion take-private transaction, bumped up the price of Tesla shares. Even though the Public Investment Fund in leading the buyout, the specter of possibility loomed.

At the same time, it’s also possible that the influx of sovereign wealth will drown the venture market. The academics mentioned earlier—King’s College London lecturer and Harvard postdoctoral fellow —point to other late-cycle surges of sovereign wealth, in other financial markets, as a cautionary note.

At this stage of the venture market cycle, direct investment at SWF scale is kind of like an intoxicatingly delicious high-proof beverage your friend brought to New Year’s party that’s already been raging for a few hours into the morning. It’ll be the last thing everyone remembers before waking up with a hangover, wondering what’s left that awful taste in their mouths.

Last bet: Most of 2019 will go by in a blur. 2020 will be the moment of reckoning.

�������ܲ��ٰ����پ��Dz�:��

Follow Crunchbase News on

After a data crunch covering 3,200 startups, researchers : More than any other factor, promising young funded companies fail because of “premature scaling”. Essentially, they tried to grow too fast.

Take Juicero, the juicing startup that before abruptly shuttering a little over a year ago. The company’s star fell after reports came out that hand-squeezing the fresh produce pouches it provided to customers was just as effective in producing juice as using its pricey juicing machines.

Or , the enterprise drone analytics startup that raised the same amount from a Who’s Who list of big name Silicon Valley VCs. The company’s software was well-received, but an attempt to branch out into developing hardware proved costlier than even its well-funded coffers could bear. The San Francisco company shut down in September.

Then there’s , the China-based dockless bike-sharing giant that is reportedly on the verge of bankruptcy after in venture and growth funding. Turns out Ofo put out far more bikes than it could feasibly keep track of, let alone repair, leading to huge piles of broken and abandoned bicycles.

How To Die

Every startup failure story is unique. However, when it comes to flawed scaling, there are a few common threads that crop up repeatedly.  A big one is companies growing sales before a core product is honed into marketable form. Another is mistaking a bunch of enthusiastic early adopters for an indicator of mass market potential.  

These days, bigger capital inflows are leading to bigger crashes. Until a few years ago, a good-sized seed round was a few million, and early stage rounds usually stayed below $20 million. Rounds of $100 million and up, at any stage, were a rarity.

Of course, that’s no longer the case. For 2018, in particular, supergiant rounds of $100 million or more have become commonplace. And it’s not just late stage. Globally, startups have raised Series A or B rounds of $100 million or more this year, in sectors from to to .  

Now, I won’t be predicting exactly which of those 100+ companies will hit a brick wall in 2019. But there probably will be at least a few — either startups that shutter entirely or begin a slower fade-out after failing to secure follow-on funding.In many of those cases, I predict we’ll see the massive sums of capital raised were a contributing factor to the startup’s eventual failure. While moving fast and breaking things may work for a few unicorns, there’s a reason it tends to turn out poorly for the rest of us.

Illustration Credit:

When , , and first unleashed their two-wheeled vehicles onto the tech-bro filled streets of San Francisco, it left most residents confused, a few outraged, and some of us enjoying the fact that we now had the “last-mile” excuse to not walk from the bus stop to work.

Of course, the San Francisco city government the companies shortly after their unauthorized debuts, but that didn’t stop them from expanding elsewhere. Now backed by more than $850 million in venture capital, Bird and Lime are leading a pack of scooter startups that have emerged in cities from Santa Monica to Singapore.

But what is to become of these massively-funded companies in 2019? I have a few ideas.

Acquisitions And IPOs

Rumors swirled earlier this month that Uber was toying with the idea of acquiring Lime or Bird.

The space has already seen one acquisition so far. Spin, an early scooter player, was acquired by Ford in November.

To add to this, Uber and Lyft also recently started their own scooter programs. After Lyft launched its self-branded scooters in Santa Monica, Uber, which invested in Lime, launched Jump scooters in Santa Monica earlier this month. Both have expanded their scooter share programs elsewhere, and an acquisition could give the companies a leg up on market share in U.S. cities where other companies already have a presence.

To complicate things, Uber and Lyft are prepping for their public debuts. Uber is targeting a hefty valuation despite significant losses, and it’s likely that the company will not want to add more fuel to that cash-burning fire, especially if the market continues trend towards a correction.

If I had to make a choice, I’d say that Lime would be the acquired company. Of course, they both could die.

Unit Economics And A Market Correction Could Mean The End

Quite a few journalists, including our own Alex Wilhelm, have the unit economics of Bird scooters, after released a report detailing some of Bird’s specific numbers. According to The Information, Bird’s gross margin is just 19 percent. That means for every dollar of revenue the firm brings in from riders, 81 percent of it goes to paying for creating that dollar in revenue. Only 19 percent is left over to help cover Bird’s corporate costs, including rent, and salaries. According to an excellent by Inc, Bird declined to state its current margins, but said that “unit economics have ‘dramatically’ improved.” As Alex noted, with ambitions to continue rapid global expansion in the face of competitors, U.S. scooter companies will likely need more venture capital in the bank to keep operating.

But what happens if a correction comes along? It certainly won’t be as easy for Bird, Lime, or other companies to pick up hundreds of millions in capital. The companies likely won’t be able to continue rapid global expansion for long, especially if competition keeps prices low and margins don’t further improve. That would leave the companies toying with other ways to decrease revenue costs.

Another hurdle for the scooter companies is regulation. City residents continue to protest the environmental and dangerous side effects of the program. Even companies like and , which scored pilot-program contracts with the San Francisco government, continue to contend with .

In the end, inviting thousands of scooters into a world that is, whether we like it or not, dominated by cars may not pan out the way scooter founders expected. I anticipate that more cities will instate preventative legislation. and that U.S. scooter companies will scale back from global expansion. Further, if the public market continues to struggle, private valuations will follow suit and the companies will have a less than impressive exit or die of capital starvation.

Illustration Credit:

Follow Crunchbase News on

With the holidays just behind us, I’ve admittedly taken advantage of Amazon Prime as much as the next person. With its promise of two-day shipping, it has come in handy—except when it hasn’t.

There’s been more than one occasion in the past month or so that I’ve ordered something for my mother and it has either been late or lost. And I’m not the only, according to this Fast Company .

But I digress.

Amazon’s been in the headlines lately because of accusations of being as well as for its . On Dec. 18, The American Geniusthat the ecommerce giant is launching an initiative called One Vendor that essentially “tells companies that they can no longer sell directly to consumers on Amazon Marketplace.” This gives Amazon even more control than it already has over independent sellers, and with some of them, Recode reported.

I have a love-hate relationship with Amazon. Like millions of others, I do like the variety of products on its site, and the fact that I can have things shipped relatively quickly. But I am also realistic about what the company’s done to so many retailers, big and small, over the years. Essentially (seemingly with little remorse) shutting down businesses left and right.

co-founder CNBC earlier this year that while he believed Amazon was “not necessarily” a bad company, he did think “empty storefronts and the country’s worsening drug epidemic” were “evidence of communities breaking down,” a trend he said Amazon “helped advance.”

“There are empty stores all over because people are pressing buttons and buying and Amazon is leading the way,” Patricof told CNBC’s Squawk Alley. “Do we want to destroy the neighborhood and neighborhood stores?”

The shift is already happening, and recent funding rounds point to the appetite of both consumers and investors for merchandise that is personal, local, and fresh. Last week, I wrote about how wholesale marketplace secured $100 million at a $535 million valuation. Faire launched nearly two years ago to try and help local retailers and makers “break free from the inefficiencies of an antiquated wholesale model.” The startup has also reached $100 million in run rate sales, so it must be doing something right. My colleague, Jason Rowley, also covered the news that , an online marketplace for home goods, art, and stationery designed by independent creators, it had raised $208 million in Series E financing.

So, what does this mean? It means that not everyone simply wants easy, not everyone wants to buy online, and not everyone wants to buy a product that thousands of other people already own.

When shopping for Christmas, I have in recent years – like many– done most of my shopping via the internet. But a couple of weeks ago, my young son asked me to take him to the mall. There, I saw a wonderful hand-carved wood gift that I scooped up for my mother. This week, I gift-wrapped it, went to the Post Office and (gasp!) mailed it to her along with an actual card and photos of my kids. It had been a long time since I’d done that instead of just ordering her something online or texting over pictures. And as I see people like dear friends whose careers are based on selling things they make by hand (like gorgeous macrame hangings and beautiful jewelry) and hand-delivering them to customers, I’m encouraged.

So in 2019, I expect we’ll see more startups that are focused on helping local and small businesses succeed get funding. And I say, Bravo! Let’s go back to shopping local more often. It might just make the world a more friendly place.

Illustration:

Today I want to make a number of predictions about technology companies and money that will turn out to be wrong and that I’ll regret making. But, it’s the holiday season, and who am I to not take part in Crunchbase News’s second annual Prediction week festivities?

What follows are various things that make sense to me today, with what is mostly available information as of mid-December. Of course, by February, I’ll hate this list and we’ll both make fun of it. Let’s go.

US Stock Market Outlook Stays Dim

As I write this on the 17th, domestic stocks just closed on a masterfully bad day. The Dow was off 507.53 points, or 2.11 percent. The S&P 500 left 54.01 points on the field, or 2.08 percent of its worth. And the tech-heavy Nasdaq ditched 159.93 points, or 2.27 percent. Those losses will probably bounce back as they have time and again this year. But I don’t see any reason why this year’s now-negative returns should be improved upon next year as the and the . So, flat at best.

Supergiant Rounds Into Chinese Unicorns Slow

The staggering influx of capital into the Chinese startup scene will probably slow. Hell, just look at how much US money is chasing returns in China. That huge inflow is likely unsustainable. It looks like FOMO in dollar-form. And the other side of the FOMO coin isn’t JOMO (please!), it’s fear.

Uber Ends 2019 On Its $72B Private Valuation

We are staring down the barrel of an Uber IPO. Now just two questions remain. First, does Lyft get out first? And second, what’s Uber’s IPO price? There’s a lot of enthusiasm for Uber’s debut. After all, it’s going to attract endless media attention, the company has huge mindshare, and, perhaps, real growth ahead of it. But at net losses of over $1 billion quarterly as of Q3 of 2018, it’s hard to figure out how Uber can be worth more than the $72 billion it’s current price tag claims. Especially as its year-over-year growth rate slips.

Lyft Beats Uber To Public Markets

This guess answers our prior question. Lyft wants to get out first to set its own narrative. If Uber follows Lyft the larger company can still write its own story. If Lyft follows Uber, Uber’s saga will become the smaller company’s arc. That’s my read, and that’s why I think Lyft is going to get its S-1 public first and float ahead of its domestic rival.

Slack or Airbnb Stay Private

By that I mean that one of the two companies won’t go public in 2019. Both are expected to hit the S-1 button next year, but I doubt they both make it out unless the public markets prove astoundingly accommodative to decacorns. In that case, each of our two firms can get the price it wants and file. Make my day, Airbnb and Slack. Prove me wrong.

Crypto Doesn’t Rebound

Why would it?

Public Multiples For Cloud Stocks End The Year Lower Than They Start

This is slightly linked to my Uber and Airbnb-Slack guesses. Each of those, and this prediction itself, are predicated on the idea of a general market price correction. Venture activity might not slip in dollar or round terms, but I suspect that public multiples (ARR multiples, and the value of other tech top lines) will contract, impacting private multiples as well. Why? Because  valuation expectations would be viewed today as shockingly bearish. And no amount of ARRG-ing your way out of that discrepancy will help when sentiment inevitably shifts.

Mediocre Startups With Nine-Figure Valuations Begin To Fail

I have a hunch that, among all the strong companies out there building material revenue, there exist a healthy percent that aren’t. And those firms are going to struggle when — pick your analogy — winter comes as the tide goes out and someone isn’t wearing a bathing suit in the snow.

So What?

There’s my list of, it turns out, mostly pessimistic takes. Why so negative? Because this party has been rolling along for so long now, Douglas Adams . And when things are too good, for too long, they tend to correct.

But I’m probably going to be wrong, again, on that view as it was popular back in 2014 (read , , and ), , and both times I thought that the bear’s call was the correct note to sound.

It wasn’t.

Bulls ran straight through all that yucky pessimism, and startups managed to keep raising while public tech companies soared. Sure, liquidity was still a bit weak, but even that got better in 2018. So I doubt that I’ll be right this time, unless I am, in which case I’m really sorry.

Happy 2019!