Silicon Valley veteran warns of ‘very frothy’ markets

Sandy Robertson is worried about what’s happening in the markets these days, and that matters. Few people in the financial world have seen more than he has.

Robertson is best known as a pioneering dealmaker in Silicon Valley, where he helped start two of the “Four Horsemen” investment banks that dominated technology underwriting in the 1990s — Robertson Stephens and Montgomery Securities. But his career dates to the 1960s, when as a Smith Barney broker covering Nebraska and Iowa, he helped an Omaha client named Warren Buffett build a position in American Express.

Now, preparing to celebrate his 90th birthday on Friday, Robertson is still surveying the scene as a director of Salesforce, and a founding partner of private equity firm Francisco Partners. While he does not detect the kind of mania that prompted him to warn about lofty internet valuations in 1999 — only months before the bubble burst — he believes “we are in a very frothy period here, too”.

“I told my younger partners, let’s not confuse a bull market in technology with investment judgment,” he said in a telephone interview with the Financial Times. “The public market looks very frothy to me.”

One warning sign for Robertson is the explosive growth in the number of blank cheque companies, known as Spacs, or special purpose acquisition companies, that generally raise money from investors with the intention of making a deal in two years. This year, 320 Spacs have gone public in the US, up from only 12 in all of 2016, according to Refinitiv.

“This Spac thing is very indicative of the later stages of a cycle,” he said. “There are some of them that are pretty good, but at the bottom there is a lot of junk.”

Robertson is not opposed to Spacs on principle. The danger for him is that there are simply too many buyers circling a limited number of appropriate acquisition targets.

“The seller has the advantage on price,” he said. “They [the Spacs] are going to pay too much. It’s the proliferation of them that I’m worried about.”

The resulting bidding wars could wind up harming acquired companies as well as Spac investors, Robertson said, pointing to the case of one private technology group with which he has become familiar.

Robertson said the company was promising, but its income stream remained irregular, meaning it should wait a while longer before taking on the quarterly reporting burdens of a public company. That is easier said than done when Spacs are offering quick listings at rich valuations.

“It just doesn’t make sense,” he said. “[For] the Spac, the time is running out on them.”

Another concern for Robertson is the cryptocurrency craze. He claims no particular expertise on the merits of a bitcoin as an alternative to its fiat brethren. But as a longtime visitor to Silicon Valley C-suites, he frets about the barbarians at the crypto gates.

“What I worry about it that these hackers are getting awfully good,” he said. “Someone is going to hack bitcoin one of these days. Figure it out. The hacking that is going on from Russia and China, and who knows where it is going on, is just incredible.”

Robertson also is wary on the tax front. A Democratic donor, he expects Joe Biden will scale back his proposal to raise federal capital gains levies as high as 43.4 per cent. But he sees trouble ahead if Congress agrees to such a high rate and states like California also approve proposals to lift taxes on the wealthy.

“I don’t know what California is going to do, but it’s going to lose a lot of interesting people,” he said. “It will limit the ability to raise state taxes because they will lose important people.”

Robertson speaks as an authority on interesting and important Californians. Raised in the Chicago suburbs, the son of a restaurant owner, he wound up in the Bay Area almost by accident. He offered to plant the Smith Barney flag in Los Angeles, but was dispatched instead to San Francisco after the head of the broker’s office there was removed.

Robertson’s ultimate success was based on ignoring his bosses. Advised to focus on established local companies, he sensed that “the economic base of the city was moving south” and cultivated contacts in the burgeoning tech world of Silicon Valley.

He eventually left Smith Barney and made friends who made history. Among his accomplishments was bringing together Eugene Kleiner and Tom Perkins over breakfast before they founded their storied venture capital firm.

“The best merger I ever did,” he said.

Robertson’s career came virtually full circle this month when Francisco joined with TPG in a $4bn deal for Boomi, the cloud business of Dell Technologies. In 1988, Robertson’s firm and Goldman Sachs took Dell Computer public. While he left the due diligence to others this time, Robertson said he played a part in the investment decision on Boomi.

Robertson isn’t the retiring type. Asked to explain his longevity in finance, he said his goal in life was to “stay active and stay curious”.

“I have tried to stay interested in everything that happens in the world,” he said, “and everything that happens in the world is reflected in the markets.”

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