Q&A: Serengeti of Private Markets with Ben Narasin of Canvas Ventures
Atish Davda | July 21, 2016
Ben is a seasoned entrepreneur and prolific
early stage investor. He took one of his earlier ventures public in 1999, and
since has focused on identifying and investing in early stage companies both,
as an angel as well as an institutional investor, first with Triple Point
Ventures and now as General Partner at Canvas Ventures.
Public and private equity markets in technology and digital
healthcare have enjoyed a strong bull run over the past several years. However,
with virtually no IPOs in the first half of 2016, they have been seemingly getting
stuck in what seems like a limbo over the past six months. So, I spoke with Ben
towards the end of June to discuss private markets, specifically the venture
capital and growth equity kind, and asked him to help lift the fog, and share
ways to find opportunities amidst the haze. A synopsis of our discussion
Atish M Davda: What
is going on over the past six to nine months? How has the temperature changed
across the industry?
Ben Narasin: It
feels like there are a lot of gray clouds of Winter in California, but the sun
is still shining in New York and Europe. It is barely Fall in New York, and I’m
hearing there are IPOs in Australia. Winter is not equally distributed and that
is a source of opportunity.
AMD: I was
just there last month, and it didn’t feel that cold. Is it really winter in
BN: Certainly, there are folks screaming “flat is
the new up” and “if it isn’t perfect, it isn’t getting funded.” In some ways,
it is a return to the way venture capital used to be. Good companies don’t get
funded. Great companies may get funded. Phenomenal companies get funded.
“VCs make money from carry not management fees”
the funding environment has changed for entrepreneurs. What about for the fund
managers themselves? We have seen some of the biggest fund raising activity
from VCs and growth equity firms in the past year.
certainly true that traditional managers have raced to market ahead of schedule
to line up capital before people put away their checkbooks. If you assume it
takes roughly three years to deploy a traditional fund, a lot of firms were
going out just two years out. But, just because money was raised doesn’t mean
it is available for investment. There is still plenty of dry powder from
existing funds, so the newly raised capital will sit on the side lines waiting
for the current fund to finish investing.
doesn’t jive with VCs slowing down their investing activity. What gives?
many people think this winter will last a while. Others think things will go
back to the way things were later this year. At the end of the day, VC is a
long term game and VCs make money from carry, not management fees. This means
that while some will remain conservative, a lot of managers will have money burning
a hole in their pockets and they will begin investing again.
AMD: Given the
way investment returns work in VC, will fund managers keep adding companies to
their portfolio or keep investing in their current portfolio?
BN: I think
you’re referring to how VC returns follow the power law, and that is reflected
managers have made their money. If you think about a VC as a nurturing animal
and their portfolio companies as cubs, most investors will save their milk,
that is capital, to keep their existing children from perishing.
Do all of the cubs get milk?
everyone’s chances are equal, but these cubs’ chances are better than those
currently not part of the litter. There is a flight to quality
and the process will be Darwinian. VCs may not back every company, but they’ll
also get out of the way if the entrepreneur is creative and can sustain the
business without additional capital or by raising outside capital. So, here’s
the beauty of it: when it’s harder to fundraise, the strongest entrepreneurs
AMD: Does this
mean companies that have sound businesses will find funding even in these
Those who raise capital demonstrate an even stronger signal now than in the
markets are] really powerful and important thing right now and will be for a
companies needing to mature more before tapping public markets, what role do
you see private secondary markets play in the ecosystem? EquityZen’s platform
has seen activity jump due to the rationalization in the market.
We’ve talked a lot about investors; what advice do you have for existing
shareholders (preferred and common holders)?
is a long-term game. Make the best long-term decision. Shareholders in private
companies should remember that private companies deserve a discount, not a
My kind gratitude to Ben Narasin for taking time to share his
thoughts on private markets. Canvas Ventures is the classic boutique venture
firm. Four partners, all stars from Morganthaler, NEA and the like. They focus
on Series A and B investments.
Have questions related to venture investing? Ask
in the comments below or tweet us @EquityZen.
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