Venture Bytes #29 – Is Public the New Private?

Posted November 21, 2016

Is Public the New Private?

The realm of tech has grown, stretched and come into the light. The sizes of funding rounds have ballooned. Institutional involvement has changed the funding mix and professionalized processes. Pension funds, high net worth individuals, stars and athletes boast of their VC funds and investments. Sitcoms and HBO have produced and enjoyed commercial success on the new geek chic. Middle America is comfortable with the notion of watching the wacky, or strange, antics of the Technorati. Many top students at top schools, the world over, want to get into tech. Starting your own tech firm is the ultimate aspiration of many – young and old. Real estate in San Francisco and in the Valley is scrapping the stratosphere. In short, tech has had a long and fast run up the growth peak. Where we are on the ascent is the subject of much talk and excitement.

It all feels like a long, steep, upswing. This is not where we opine on the vitality or longevity of the present run. We would rather pause to ponder if, pubic is becoming the new private. After all, everything old eventually becomes new again. Tech and the Valley are well known for being trend driven and newness and youth obsessed. We agree with both broad-brush critiques. For the last 15 years private has been the rage. Stay private, be private, raise big rounds in the private space, and take your company private.

This year has been a wild one for the IPO window. The first half of 2016 saw an epic dry spell for tech IPOs. The window was nailed shut and tinted to total opacity. There were no venture-backed tech IPOs, despite there being a record shredding 140 plus unicorns or billion dollar plus private companies. Thus, we have record-breaking cash piles, at least post 2001 record breaking, and more monies chasing tech. New and deep pocketed, institutions are hunting tech exposure and feasting on esoteric technology and execution risk like it were sovereign debt. Investors, retail and other, are unable to satiate their media and hope filled expectations. Specialized funds and mutual fund families fidget waiting in the wings to add to, or begin building, their positions in the emerging giants of the sharing economy and new tech. But, still no deals. Until Q3 when the floodgates began to open.

Deep into Q3 and building into Q4, the IPO filing line and excitement is developing. It could not come sooner, or at a better time. We need to test and reshuffle some of the valuations and intuitions of the swollen ranks of private techland. Venture firms, angels and limited partners need to trade paper home runs for real monies and solid RBIs. In short, we need to see some of the promise of the latest enormous run in venture world become real world returns. And we are beginning to see this take place.

Our recent IPOs have come raging out of rusty gates to long starved and fired up fans. Their success has revealed a deal vacuum that is pulling forth a lot of firms and interest. It feels like public may be the new private. This is largely a positive as it was long overdue. However, we need to and will soon see if public is the new private or, if public markets still have higher profit demands and less tolerance for big risks and long term projects. We have to see if the public can pick up the baton as the private looks like it just might have reached a peak.

It’s the Content, Stupid

AT&T wants to acquire Time Warner, Comcast acquired NBCUniversal and Verizon swallowed AOL and Yahoo. To say the line between communication companies and media companies is getting blurred would be an understatement. But what exactly is driving this blurring of the line? It is content. Premium content to be more precise.

After battling to keep the pendulum in favour of distributors over content creators, the communication providers have accepted the reality that is reshaping the landscape. Their pipes have become commoditized, and technology companies such as Facebook and Google have built multi-billion dollar businesses on their infrastructure.

The distributors have decided to skate where the puck is going. These companies, with their vast networks, don’t just want to deliver the content anymore, they want to control it. Why? Because consumers are watching more content than ever before (a 121% increase since 2011), and they’re spending more on it too. Spending on digital content, according to a recent study from Juniper Research, is expected to reach $180 billion in 2017, up 30% from last year’s $140 billion.

More importantly, much of that growth is coming not from pay-tv firms but streamed video services like Netflix, Hulu and Amazon Prime. AT&T, Verizon and, to a large extent, Comcast have been paying the price, with many of its pay-tv customers “cutting the cord” and switching to the cheaper, more flexible digital streaming services.

Earlier this year AT&T launched an ad-free subscription based TV service called Fullscreen that you could watch online and on a smartphone. It was a clear attempt to target the younger, harder-to-reach demographic that AT&T has been losing to digital competitors. Similarly, Verizon launched its own digital video service aimed at millennials, G090, in September, while in the same month, Comcast launched a similar competitor called Watchable.

Time Warner is now AT&T’s most significant step in that direction yet thanks to a compelling portfolio of popular networks and programs that can serve as the foundations for an attractive, video streaming service. With the proposed deal, AT&T takes control of news network CNN, Game of Thrones network HBO, Cartoon Network, NBA TV, TNT and entertainment giant Warner Bros., whose movie studio is behind the Harry Potter movies and Dark Knight Trilogy. AT&T has around 132 million wireless customers, and with some of Hollywood’s most lauded movies and TV shows in its portfolio, it can now offer differentiated video services, whether it’s traditional TV, OTT or mobile. Not only that, the company’s TV, mobile and broadband distribution and direct customer relationships provide unique insights from which to offer addressable advertising and better tailored content.

Whether this deal goes through or not is debatable. One point however is not debatable: premium content is king and the blurred line between communication and media companies has been permanently erased.