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Folks have been predicting this throughout 2010 as well as 2011. The arguments are generally devoid of data, i.e., "based on what we see". First, let me say,

by asanwal 15y ago

Folks have been predicting this throughout 2010 as well as 2011. The arguments are generally devoid of data, i.e., "based on what we see". First, let me say, there will eventually be a decrease in funding levels primarily because the VC asset class is raising less money and since they can only invest what's in their bank accounts, it has to come down. When will that happen? Not sure. Here's some thoughts based on data we collect. - 2011 is shaping up to be banner year for VCs ($30B+ invested) - Seed investments whether by VCs, VCs & angels or just angels are growing like mad If you think of investing as a funnel, i.e., more seed stage companies get funded than Series A than Series B, etc, it def looks like the funnel has gotten a bit fat up top, i.e. a lot more seed deals than Series A, B, etc money down the pipeline. So if anything, the Seed thing has been overdone. At the same time, many of those Seed companies can become real businesses on just the Seed round, i.e., SaaS companies (just look at UserVoice's second small round raise as a case study). Or these companies get acquired for $20-$50 million. Which is not a great return for a mega-VC who only care about billion dollar opportunities, but can be quite good for a micro-VC. I'd imagine Dave McClure and others like 500Startups would be happy hitting those all day long. That said, there is an overabundance of seed backed companies and many of these will be orphaned and die. That's not a bad thing. It's the market working. At the same time, there are a lot more investors at the Seed stage and a lot more can pile in so the trend might continue for a while as everyone hopes to fund the next Facebook, Pinterest, Quora, etc (pick your soup du jour). This is only natural as there are a lot more folks who can invest at the $1 million level than the $10 or $100 million level. As to whether later rounds will decrease in # and a bubble exists, that can really only happen when the buyers (investors) decide not to pay crazy valuations. I'm not sure what the 'forcing mechanism' will be that will drive this. There is not a long list of public internet companies that will set the "real price" for these companies and cause a correction. So without the forcing mechanism, it comes down to investors agreeing that valuations in private markets are too high. Not sure there is anything out there that would cause an across-the-board shift like that. Of course, some investors might get more conservative but there looks to be no dearth of cowboys investing right now. Finally, this could all change if the stock market and general economy go into a tailspin. If I could predict that with any precision (or if anyone could), we're in the wrong business. Some links for those interested in some data - Startup Cash Crunch? Hardly - http://www.cbinsights.com/blog/venture-capital/startup-cash-crunch http://www.cbinsights.com/blog/venture-capital/startup-cash-... VC on track for $30B in 2011 - http://www.cbinsights.com/blog/venture-capital/quarterly-venture-capital-report-q3-2011 http://www.cbinsights.com/blog/venture-capital/quarterly-ven...

kls 15y ago
Another thing to consider are the built-to-flips. We never had that in the .com era. Where companies where built with the expectation that they would be bought out by a larger player. That eco-system is enjoyed by all parties in it. The large players are actively encouraging this form of company and are purchasing the ones that rise to the top. This means that public exits do not have to be the only strategy for a company and creates a secondary market of purchases therefore offloading some of the risk that a company in the end must become profitable or be able to exit via public funds. The dynamics of the market have changed and many that are claiming a bubble look at the market with the same dynamics that the .com bust had. It's hard not to do, given that it was pretty traumatic for everyone involved but there are different forces at work today and the market has become more resilient. I think it will eventually bubble, but I personally think there is runway left. I am more concerned about the capital flight from the Euro and it trying to find a place to nest than I am with any of the news out of the Vally.
dextorious 15y ago
"""Folks have been predicting this throughout 2010 as well as 2011. The arguments are generally devoid of data, i.e., "based on what we see".""" Actually, "what we see" is the very definition of EMPIRICAL DATA. What you probably wanted to say was "devoid of any theory" etc. But no theory has yet untangled the economic prediction thing --too many parameters. A little manual pruning of the empirical data by someone with experience in the trenches is better than some vague theory or a bunch of stats.
- asanwal 15y ago
  I don't disagree with you (fully), but unfortunately, hand-wavy predictions about a bubble appear to be the norm. If someone is predicting a bubble, share the empirical data points that led you to that conclusion.

by asanwal 15y ago

kls 15y ago

Another thing to consider are the built-to-flips. We never had that in the .com era. Where companies where built with the expectation that they would be bought out by a larger player. That eco-system is enjoyed by all parties in it. The large players are actively encouraging this form of company and are purchasing the ones that rise to the top. This means that public exits do not have to be the only strategy for a company and creates a secondary market of purchases therefore offloading some of the risk that a company in the end must become profitable or be able to exit via public funds. The dynamics of the market have changed and many that are claiming a bubble look at the market with the same dynamics that the .com bust had. It's hard not to do, given that it was pretty traumatic for everyone involved but there are different forces at work today and the market has become more resilient. I think it will eventually bubble, but I personally think there is runway left. I am more concerned about the capital flight from the Euro and it trying to find a place to nest than I am with any of the news out of the Vally.

dextorious 15y ago

"""Folks have been predicting this throughout 2010 as well as 2011. The arguments are generally devoid of data, i.e., "based on what we see".""" Actually, "what we see" is the very definition of EMPIRICAL DATA. What you probably wanted to say was "devoid of any theory" etc. But no theory has yet untangled the economic prediction thing --too many parameters. A little manual pruning of the empirical data by someone with experience in the trenches is better than some vague theory or a bunch of stats.

asanwal 15y ago
I don't disagree with you (fully), but unfortunately, hand-wavy predictions about a bubble appear to be the norm. If someone is predicting a bubble, share the empirical data points that led you to that conclusion.