The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

The End of the VC Start-Up Frenzy

As a contrarian investor, we regularly look for signals that are often disregarded by main stream media outlets. These signals can help forecast possible future market turns and, at times, can issue a red flag when new incremental buyers seem to be drying up. This week we found yet another example of irrational behavior in the VC world.

Here is an excerpt from an article from Fortune Magazine about how Siemens is sinking $1.1B into startups in hopes of staying ahead of the curve – 6/28/16

Siemens to sink $1.1B into startups to stay ahead of the curve

Through a new unit called next47, Siemens will make the funds available to employees, external startups and established companies that can help expand its core strengths in automation and electrification in new directions.”

For us this is another sign of bad times ahead. When very large firms buy their way into a field they essentially know very little about, especially after that area has already boomed for seven years, it is a sign that the so called “stupid money” is coming in. It usually ends in big losses for them. The “start-up financing frenzy” has started to come to an end.

As the “cash cow” of venture capital dries up, it will lead to the failure of a lot of new business. These start-ups will find that in order to survive they will have to generate positive cash flow quickly, something they don’t know how to do. The domino effect definitely applies here and once that “easy money” train leaves the stations like it did back in 2000, it won’t be back for quite a while.

Read the full article here: http://fortune.com/2016/06/28/siemens-invests-in-new-startups-unit/