Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995
daniellemorrill.com
daniellemorrill.com
Update: I just saw this was for Q1. Totally got that mixed up. Still though, not sure crunchbase data is most accurate.
I find this much more likely. A couple years ago Crunchbase seemed to be way more up-to-date than it is now. Reasons probably include: AngelList gaining traction, TechCrunch no longer seems to be as actively updating Crunchbase and isn't including a big "Crunchbase box" at the bottom of each article like they used to.
But is it concerning? These numbers, in isolation, aren't necessarily an indicator of a Bad Thing. Maybe the cost of founding a startup has dropped to the point that fewer startups are choosing the venture capital route? Maybe more people are bootstrapping, crowd-funding, and funding organic growth from customer revenue?
I don't think any major event happened around Jul-Sept 2012 (about where it started to trail off) that precipitated significantly cheaper cost of founding a startup.
Note: I got a downvote, if u going to downvote at least explain why. If can't then don't participate at all because it does not help the community.
Demand is not spread out evenly among startups. A 95th percentile startup will get multiple competing VC/angel offers, which bids up the valuation. A 30th percentile startup is going to get no offers.
Furthermore, you could also say that demand is rising as well: exits from previous years means that there are a lot of angel investors out there flush with cash who are looking for the best deals.
From my experience (as an early employee at a VC-backed startup in SV), the top startups (95th percentile), are still seeing high seed valuations.
As a side-note. If someone downvotes you, they do not have an obligation to explain themselves. If I recall correctly, pg stated somewhere a long time ago that he was fine with people downvoting just to express disagreement.
EDIT: I found the link: https://news.ycombinator.com/item?id=117171
Yes it is. A perfect monopoly is very rare and i don't see any, you using an extreme case. Most importantly, the difference between company and industry disappears under conditions of a monopoly.
" A lot of the new startups that are rushing in are just noise."
That is your point of view and not a fact. This sets up my next point.
""Startups" are not a fungible product for which there are perfect substitutes.
True. Although there are many startups circling the same new hot space, after instagram, how many many new photo startups sprung up funded or not funded? SoloMo, how many startups circled this space when it was hot? I heard a VC say he is tired of hearing pitches about discovering friends nearby. Startups can be put into clusters, if you ran a k-means or hierarchical clustering algorithm on the startup scene you would see this. In these clusters is where VC's or angel investors are spoiled for choice, they may not have perfect substitutes but they are pretty darn close.
"exits from previous years means that there are a lot of angel investors out there flush with cash who are looking for the best deals."
This is just not true. Angel Investing is damn hard, have you ever looked at the return distribution of the VC industry, it is more fat-tailed than anything else. How many angel investors on AngelList have had profitable exits in the last 3yrs? I see a lot of people outside of tech with money coming in to be angel investors because its the new hot thing and they just need to put in $20 000 per company. I have seen places popup where they give you just accomodation and office space for a huge share of your business.
"From my experience (as an early employee at a VC-backed startup in SV), the top startups (95th percentile), are still seeing high seed valuations."
You are talking about extremes here again.
" If I recall correctly, pg stated somewhere a long time ago that he was fine with people downvoting just to express disagreement."
Yes, but wouldn't it make a better community if out of courtesy you did. I have seen people do it and i am impressed.
Okay. I was only saying that even though there are tons of startups, most startups are not very valuable. Given that everything follows a power law, I don't think this is just an opinion, but rather a widely held sentiment in the VC community, the Y Combinator community, and the wider SV community.
In these clusters is where VC's or angel investors are spoiled for choice, they may not have perfect substitutes but they are pretty darn close.
VCs and angels understand that it's not the idea, it's the team. There is most certainly clustering of ideas (i.e. crowdfunding, X-sharing, etc.) Yet VCs are by no means spoiled when it comes to choice of teams. There is a huge amount of variability when it comes to the quality of founding teams. The best founding teams will still get extremely high valuations, and mediocre teams will get no funding at all.
>This is just not true. Angel Investing is damn hard
I am well aware that angel investing returns suck. I'm not talking about those people. I'm talking about founders/employees who are now multimillionaires due to acquisitions/IPOs. You forget that every time a company has an exit of 30M-1B, you now have 3-10 multimillionaires. There are probably 50+ early Facebook employees who are now dabbling in angel investing after the IPO (lackluster IPO notwithstanding).
>You are talking about extremes here again.
This sentence does nothing to actually disprove my point. The whole economics of startup investing revolves around the extremes. So of course we need to talk about the startups at the 90th and 95th percentile. Your "average-case" startup never gets funding and fails, no matter what the economic condition is.
>Yes, but wouldn't it make a better community if out of courtesy you did. I have seen people do it and i am impressed.
It would be helpful, but the tone of your original post made it sound like a demand: "If can't then don't participate at all."
page 10 of this report -- https://www.cbinsights.com/reports/Q4%202012%20Venture%20Cap...
Picking any month or quarter as suggestive of a trend is generally not going to work. Funding #s get skewed wildly by mega-deals (throw in one big clean tech or Groupon type of financing and things look great and if they're missing, not so good). As of late, mega deals to clean tech have been non-existent which has been a drag on numbers overall.
The Q4 2012 #s did show a decline vs the earlier quarters of 2012. The data is here - http://www.cbinsights.com/blog/trends/venture-capital-2012-r...
Re: exits -- again a single quarter doesn't make for a trend.
If we see sluggish investment and funding levels for many quarters, then there may be reason for "concern" although it is probably a healthy purging of the system in our view.
Note: Our company, CB Insights, tracks VC investment flows and exits. We compete against Thomson (the provider of the NVCA data).
While I agree that a single quarter doesn't make a trend, according to this Crunchbase data there has been a steady decline over the past 10-12 months. I'll have to dig into CBinsights to see whether this is similar in your data set as well.
1. It could just be a random drop in the numbers. The VC world is VERY small and there are VERY few players. Equally, VERY few deals get done every year. Moreover, megadeals can really skew the numbers. So even seemingly small randomness can have big effects on volatility. Heck, look at the chart!
2. There's a well documented drop in the number of venture firms out there and in turn with available capital. Less supply...
3. Many venture firms have been burned by gaming and consumer oriented investments and moving trying to move back to their IT roots. However, the majority of angel and seed investing only recently started focusing IT so the there could be a pipeline issue.
My point is that if next month jumps back to a number closer to recent trends, the last month could easily be an outlier.
Now, if there is a continued depressed trend in startup investments over the next six months, one could put forth a convincing case that new tax laws and problems in the Euro-zone (as NVCA suggests) are hurting startup investments.