Many tech stocks have taken a severe beating in recent months, and there may be more drawdowns ahead. You might be wondering, is the tech stock boom over for good, or is this just a temporary lull? In this segment of Backstage Pass, recorded on Jan. 28, Fool contributors Toby Bordelon, Jason Hall, and Rachel Warren discuss.
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Toby Bordelon: Record levels of VC financing in tech, last year guys, $600 billion for tech start-ups last year from venture capitalists. But now some valuations are starting to come down, we're seeing that it's even looking like in some cases, VCs are trying to renegotiate deals they've already made, going back on their word, is that shocking?
We know we thought your company was worth $50 billion last week, it turns out it's only worth $40 billion.
Let's rethink this deal we've agreed to. I don't know, here's my two-part question here, is the tech boom done forever? Forever we're on, no more tech boom. Whether it is or not, are VCs at least partially to blame for some of the valuation collapse we have seen given that it wasn't too long ago they were fighting all over each other to bid valuations up to say, questionable levels for some tech start-ups that you're wondering, is that a business?
Jason, start us off.
Jason Hall: Obviously it's overdue. It's just whoever leaves last, just turn off the lights. We should totally blame the VCs. No, let's don't blame them. Let's indict them.
But first, we're going to round them all up and we're going to take them to Cuba. [laughs] We're going to put them on trial at Gitmo. Then we're going to lock them up in Gitmo and we're going to throw the keys in the Atlantic Ocean. That's what we should do.
Bordelon: Harsh, Jason.
Warren: Jason, tell us what you think. [laughs]
Bordelon: That was harsh.
Hall: Seriously, I don't believe any of that at all, are they responsible? Of course, they're responsible to a large degree because it's the VCs that generally drive so much of a lot of these companies coming public. But at the end of the day, this is also largely how capitalism works. I think we should remember that too, that this is a mechanism, it's a feature of the way capitalism works.
These are the people that risk the capital the earliest. When these companies have very little footing, look really compelling, and they give them the money to get to scale, and then they bring them public and they exit at least part of their investments, and then they go find the next 20 or 30 to invest their proceeds in. Of that 20 or 30, one or two, we're going to work out really well.
Fifteen of them are not going to exist. If you are going to do OK, they might go public or they might get acquired by a public company. It's a part of the way the system works. The VCs simply took advantage of what the market was bearing.
They do that when the market is paying high valuations or when the market is paying below-average valuations. It's the nature of the way it works. I don't hate it. I don't hate on them. I hate the game, not the player, I'm doing it the other way around, I guess.
