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Money that comes easily, goes easily. Where did the VCs get the money from [1][2]? If they didn't break a sweat, they won't hesitate to throw it around without

Money that comes easily, goes easily. Where did the VCs get the money from [1][2]? If they didn't break a sweat, they won't hesitate to throw it around without asking questions about profitability. EDIT: People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;) [1] Probably from banks who got it from the gov't who got it for cheap, right? [2] http://agilevc.com/blog/2014/10/29/where-do-venture-capital-dollars-actually-come-from/ http://agilevc.com/blog/2014/10/29/where-do-venture-capital-...

epistasis 10y ago
VC funds getting money from banks? I've not heard of that and your link doesn't support it. Unless the government connection you're trying to assert is that low interest rates drove more money into VC funds in order to seek higher returns.
- hughw 10y ago
  From a 2014 WSJ article [1] : "Spanish banking giant Santander in July announced a $100 million venture capital fund to invest in fintech start-ups globally, and a few months ago HSBC allocated up to $200 million for investment in early-stage tech companies with the aim of improving its technology." [1] http://blogs.wsj.com/digits/2014/08/04/banks-lure-fintech-startups-with-venture-funds/?mg=id-wsj http://blogs.wsj.com/digits/2014/08/04/banks-lure-fintech-st...
  - morgante 10y ago
    These are literally drops in the ocean for banks and VC in general. Banks invest in VC the same way that auto manufacturers do: to suss out potential innovations and/or to have inside access to future disrupters. They don't do it for the returns.
- merrywhether 10y ago
  > Unless the government connection you're trying to assert is that low interest rates drove more money into VC funds in order to seek higher returns. This is a constantly overlooked factor in what's been driving the VC climate for the past few years. "Cheap" money (in the form of low interest rates) pushes more money into riskier positions, and the VCs have to give that money to someone. It's no coincidence that the correction is coming at the same time as interest rates finally rising again.
  - SilasX 10y ago
    I get the theory there but it's never seemed realistic to me. What VC would actually change their mind about pulling the trigger on an equity by because of a fractional point change in the risk free rate? It just doesn't make sense.
    - rhizome 10y ago
      Are you saying that a change in interest rates doesn't have an effect on funding decisions? Because it seems like fractional interest rate changes would have (at least) a fractional effect on risk perception. Plus, are you accounting for tax benefits and other ancillary forces?
      - SilasX 10y ago
        Not on the kind of long-tail high-risk investments VCs make, no.
    - nostrademons 10y ago
      It's not the individual VC that changes their mind. The LP that funds the VC has to work harder for returns when money is cheap. They're incentivized to put more money into potentially higher-yielding investments (or even just keep the same asset allocation, but a bigger pool = more money going into VC at the same allocation). That in turn means they're incentivized to fund more marginal VC firms, and then it's the marginal VC firms that fund the marginal startups. Good VCs usually maintain the same investing standards in good times and bad. But during boom times, there are more VCs, and many of the newcomers aren't particularly good at it.
bdcravens 10y ago
The article and infographic you link to never mentions banks or the government, and the sources it references for VC funds don't suggest "money that comes easily". (pensions, corporations, endowments, etc - primary or secondary sources that came from working for money) That's why you're being downvoted. You're attempting to take a controversial position without any logical proof. The "truth of the market" doesn't support your conclusion.
ChuckMcM 10y ago
There are some great web sites on how venture capital works, I can recommend https://hbr.org/1998/11/how-venture-capital-works https://hbr.org/1998/11/how-venture-capital-works for the basic model (this was pre-dot-com bubble bursting so it got tweaked) and Fred Wilson's summary (http://avc.com/2014/05/vc-fund-economics/ http://avc.com/2014/05/vc-fund-economics/) is a good followup. edit: Wright->Wilson, thanks gist.
- gist 10y ago
  > Fred Wright's summary You mean Fred Wilson.
morgante 10y ago
> People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;) You are getting downvoted because while your point about money coming easily might be correct, your link for where money comes from directly contradicts your point. VC LPs are overwhelmingly people who (a) have a financial incentive to see good returns and (b) are qualified investors. They include family offices, mutual funds, and sovereign wealth funds. A big part of the latest outsized valuations are actually startups which route around VCs by directly taking investments from so-called "dumb money"—investors who might actually be pretty good at managing a basket of investments, but are not qualified or experienced enough to directly established suitable valuations for startups.

epistasis 10y ago

VC funds getting money from banks? I've not heard of that and your link doesn't support it. Unless the government connection you're trying to assert is that low interest rates drove more money into VC funds in order to seek higher returns.

hughw 10y ago
From a 2014 WSJ article [1] : "Spanish banking giant Santander in July announced a $100 million venture capital fund to invest in fintech start-ups globally, and a few months ago HSBC allocated up to $200 million for investment in early-stage tech companies with the aim of improving its technology." [1] http://blogs.wsj.com/digits/2014/08/04/banks-lure-fintech-startups-with-venture-funds/?mg=id-wsj http://blogs.wsj.com/digits/2014/08/04/banks-lure-fintech-st...
- morgante 10y ago
  These are literally drops in the ocean for banks and VC in general. Banks invest in VC the same way that auto manufacturers do: to suss out potential innovations and/or to have inside access to future disrupters. They don't do it for the returns.
merrywhether 10y ago
> Unless the government connection you're trying to assert is that low interest rates drove more money into VC funds in order to seek higher returns. This is a constantly overlooked factor in what's been driving the VC climate for the past few years. "Cheap" money (in the form of low interest rates) pushes more money into riskier positions, and the VCs have to give that money to someone. It's no coincidence that the correction is coming at the same time as interest rates finally rising again.
- SilasX 10y ago
  I get the theory there but it's never seemed realistic to me. What VC would actually change their mind about pulling the trigger on an equity by because of a fractional point change in the risk free rate? It just doesn't make sense.
  - rhizome 10y ago
    Are you saying that a change in interest rates doesn't have an effect on funding decisions? Because it seems like fractional interest rate changes would have (at least) a fractional effect on risk perception. Plus, are you accounting for tax benefits and other ancillary forces?
    - SilasX 10y ago
      Not on the kind of long-tail high-risk investments VCs make, no.
  - nostrademons 10y ago
    It's not the individual VC that changes their mind. The LP that funds the VC has to work harder for returns when money is cheap. They're incentivized to put more money into potentially higher-yielding investments (or even just keep the same asset allocation, but a bigger pool = more money going into VC at the same allocation). That in turn means they're incentivized to fund more marginal VC firms, and then it's the marginal VC firms that fund the marginal startups. Good VCs usually maintain the same investing standards in good times and bad. But during boom times, there are more VCs, and many of the newcomers aren't particularly good at it.

bdcravens 10y ago

The article and infographic you link to never mentions banks or the government, and the sources it references for VC funds don't suggest "money that comes easily". (pensions, corporations, endowments, etc - primary or secondary sources that came from working for money) That's why you're being downvoted. You're attempting to take a controversial position without any logical proof. The "truth of the market" doesn't support your conclusion.

ChuckMcM 10y ago

There are some great web sites on how venture capital works, I can recommend https://hbr.org/1998/11/how-venture-capital-works https://hbr.org/1998/11/how-venture-capital-works for the basic model (this was pre-dot-com bubble bursting so it got tweaked) and Fred Wilson's summary (http://avc.com/2014/05/vc-fund-economics/ http://avc.com/2014/05/vc-fund-economics/) is a good followup. edit: Wright->Wilson, thanks gist.

gist 10y ago
> Fred Wright's summary You mean Fred Wilson.

morgante 10y ago

> People who are downvoting are trying to hide the truth of the market, whether it's a bubble or not, this is the source of the money and in turn, your livelihood ;) You are getting downvoted because while your point about money coming easily might be correct, your link for where money comes from directly contradicts your point. VC LPs are overwhelmingly people who (a) have a financial incentive to see good returns and (b) are qualified investors. They include family offices, mutual funds, and sovereign wealth funds. A big part of the latest outsized valuations are actually startups which route around VCs by directly taking investments from so-called "dumb money"—investors who might actually be pretty good at managing a basket of investments, but are not qualified or experienced enough to directly established suitable valuations for startups.