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Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

daniellemorrill.com

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Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#11

Post by biznickman »

This news was reported in January: http://thenextweb.com/insider/2013/01/16/vc-funding-increasi.... Also, using Crunchbase as a source for total funding is not incredibly accurate. CBInsights has far better data on this since they are tracking literally all venture funding activity. What would be more valuable is to see how this differs from one market segment to the next over time.

Update: I just saw this was for Q1. Totally got that mixed up. Still though, not sure crunchbase data is most accurate.

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#12

Post by dmor »

asanwal wrote: post #9

edit: Dec 2012 was the worst month for VC investment since August 2012 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,…

Thanks, I just signed up and I hope I'll be able to use your data to support future blog posts.

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.

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#13

Post by dmor »

biznickman wrote: post #11

This news was reported in January: http://thenextweb.com/insider/2013/01/16/vc-funding-increasi... . Also, using Crunchbase as a source for total funding is not incredibly accurate. CBInsights has far better data on this since they are tracking literally all venture funding activity. What would be more valuable is to see how this differs from one market segment to the next over time. Update: I just saw this was for Q…

Ah my bad, should have been clear it was the Q1 part about IPOs and M&A that I didn't see reported in tech pubs. Will clarify.

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#14

Post by asalazar »

Here are three potential reasons.

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.

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#16

Post by adanto6840 »

joshavant wrote: post #5
mindcrime wrote: post #2

Even more concerning, on Monday the National Venture Capital Association reported... 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 like the optimism, however, you'd expect the same factors would be at play as you move backwards into the past (while funding amounts continued to rise). 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.

I don't have a very strong opinion or thought one way or another here really, but perhaps it just became more mainstream "knowledge" (right or wrong), or more common / trendy even, to not look for VC money quite as aggressively...

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#17

Post by argonaut »

nashequilibrium wrote: post #10

Economics 101: "An increase in supply leads to a decrease in price" The influx(crazy influx) of startups has allowed VCs to invest less an get higher % ownership. You will not see a $40mill color type investment for a long time, at least until we have a shakeout, which we will. Bloomberg West has just added an additional hr to cover the tech industry 10am/3pm. This smells a lot like the hedgefund biz. The startups re…

I didn't downvote you, but that is not Economics 101. To give you an example, supply is irrelevant to price in a perfect monopoly. Not all startups are created equal. A lot of the new startups that are rushing in are just noise. "Startups" are not a fungible product for which there are perfect substitutes. A VC does not typically decline a deal because "I could just put the money into another startup that has an identical team and identical idea." If they like the startup they'll invest. If they don't they won't.

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

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#19

Post by nashequilibrium »

argonaut wrote: post #17
nashequilibrium wrote: post #10

Economics 101: "An increase in supply leads to a decrease in price" The influx(crazy influx) of startups has allowed VCs to invest less an get higher % ownership. You will not see a $40mill color type investment for a long time, at least until we have a shakeout, which we will. Bloomberg West has just added an additional hr to cover the tech industry 10am/3pm. This smells a lot like the hedgefund biz. The startups re…

I didn't downvote you, but that is not Economics 101. To give you an example, supply is irrelevant to price in a perfect monopoly. Not all startups are created equal. A lot of the new startups that are rushing in are just noise. "Startups" are not a fungible product for which there are perfect substitutes. A VC does not typically decline a deal because "I could just put the money into another startup that has an iden…

"I didn't downvote you, but that is not Economics 101. To give you an example, supply is irrelevant to price in a perfect monopoly."

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.

Re: Startup Investment Hits 3.5 Year Low in December, Q1 M&A Slowest Since 1995

#20

Post by argonaut »

nashequilibrium wrote: post #19
argonaut wrote: post #17

Earlier quoted context omitted.

I didn't downvote you, but that is not Economics 101. To give you an example, supply is irrelevant to price in a perfect monopoly. Not all startups are created equal. A lot of the new startups that are rushing in are just noise. "Startups" are not a fungible product for which there are perfect substitutes. A VC does not typically decline a deal because "I could just put the money into another startup that has an iden…

"I didn't downvote you, but that is not Economics 101. To give you an example, supply is irrelevant to price in a perfect monopoly." 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…

>That is your point of view and not a fact. This sets up my next point.

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."

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