Make no mistake, venture capital has been falling consistently, despite all the positive spin the media hype machine used last year — tumbling and spinning numbers, comparing apples to oranges. You read about this last year on the Diligent Venture blog and again briefly here. And here’s where we are now:
U.S. venture capital investment has fallen for three straight quarters and is now at the lowest level since the third quarter of 2010 Read more …
Worse still, there hasn’t been any significant, positive change to the fundamentals to indicate that the situation will get significantly better any time soon. The JOBS Act was pitched to the public as some amazing, silver-bullet legislation that would reinvigorate investment. After passing it, all we’ve seen is consistent decline in venture capital.
Part of the blame lies with the Securities Exchange Commission (SEC), which can’t find the time or resources to publish the rules that are required to implement the JOBS Act. In fact, the SEC has already missed its deadlines for producing such rules. SEC Misses Two Key JOBS Act Deadlines.
But this is not just a U.S. phenomenon, so we can’t simply blame the SEC or the United States economy. Check out the parallel bad news on the other side of the world:
For only the second time since 2008, more than half of Israeli venture-capital funds — some 51% — made no investment in the quarter. Israeli Venture Capital Funding Slips
Are VC funds eyeballing the global slowdown, deflation in commodities, dragging sales reports, and deciding to wait and see?
"Thus, now we are facing a “nuclear winter” (!) where thousands of companies will go out of business."
— Crappy Startups Can’t Raise More Money
"The decline in funding for Seed/Early stage companies is firmly in place — we’ve seen a drop in dollars and deals both quarter-over-quarter and year-over-year"
— Told you we weren’t in a bubble: Venture capital off significantly in 2012
"Median valuations for seed financings in 2011 reached $2.9 million, more than 60% higher than the previous year and the highest total since the dot-com frenzy of 2001, according to industry tracker Dow Jones VentureSource, a unit of Wall Street Journal owner News Corp."
Venture capital investment figures are rolling in for the most recent quarter - and many folks are excited about it. Venturebeat just published a slew of recent deals:Venture Capital Makes it Rain.
BUT DON’T GET EXCITED. SPECIFICALLY, DON’T POINT TO THE THE 37% INCREASE OVER Q1 — IT’S NOT “IMPRESSIVE” (AS ONE AUTHOR CLAIMS).
Q1 WAS A TERRIBLE QUARTER. THAT HAS TO BE ACCOUNTED FOR.
WHAT’S THE MOST IMPORTANT NUMBER NOT REPORTED IN THE NEWS? THE FIRST HALF OF 2012 PRODUCED 8% LESS FUNDING THAN THE FIRST HALF OF 2011.
MORE PRECISELY, THE FIRST HALF OF 2012 HAD $1.2 BILLION LESS VC INVESTMENT THAN THE SAME PERIOD IN 2011.
Q1 2011: 7.5 Q2 2011: 7.7 Q1+Q2 = 15.2
Q1 2012: 5.9 Q2 2012: 8.1 Q1+Q2 = 14
BUT WAIT, THERE’S MORE!
VCs AREN’T THE ONLY ONES HAVING A BAD 2012:
"Corporate deals are going increasingly to later-stage startups and tend to be higher in value, which indicates that corporate venture capital firms are taking fewer risks."
— New York No. 3 in corporate venture capital
HERE’S THE TRUTH:
FIRST QUARTER 2012 WAS THE LOWEST QUARTER FOR VC DEALS IN THE LAST 5 QUARTERS — SO A GROWTH RATE OF 16% OVER FIRST QUARTER IS MOSTLY A SIGH OF RELIEF — NOT A CAUSE TO BE EXCITED AND OPTIMISTIC FOR THE FUTURE.
AND HERE’S THE REAL “GOTCHYA!” VC FUNDING FELL IN CHINA. THAT’S RIGHT. IF YOU’VE BEEN READING THIS TUMBLR, YOU’RE PROBABLY ASKING YOURSELF, HOW MANY MORE SIGNS OF A DOWNTURN IN CHINA DO WE NEED BEFORE EVERYONE REALIZES “OH CRAP, WE’VE GOT A SECOND DIP ON THE WAY!”
BUT IF YOU DON’T WANT TO HEAR ANY OF THAT, READ MORE HYPE AT: Venture Deal Making Rises In The US, Europe and India, But Slips In China During 2Q
"The bad performance of the Facebook IPO will hurt the funding market for earlier stage startups. No one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle."
— Paul Graham, cofounder of Y Combinator, Silicon Valley startup incubator
"The problem with many accelerators right now is that they’re not focused primarily on education or making money as the output/result. Instead, they’re focused on “community building” – particularly in non-startup hubs. I see this as a mistake, because you can’t manufacture communities this way; you need to focus on building successful (and big!) companies that exit, and return some of the cash and know-how back into the ecosystem."
"Suddenly everyone believes that the answer is in accelerators, and we have no [long-term data] to support it,"
— Lesa Mitchell, vice president of advancing innovation at the Ewing Marion Kauffman Foundation, an entrepreneurship advocacy organization in Kansas City, Mo.
(Source: The Wall Street Journal)
"YOU’VE GOT TO BE CAREFUL NOT TO CONFUSE GROWTH WITH VALUE."
"Last year, Accel raised $2.8 billion in fresh capital, while the broader industry contracted. Venture firms started 76 funds last year, the lowest number in 17 years, according to the National Venture Capital Association."
"On a whole, there are very few high tech models that lend themselves to successful (long-term) bootstrapping in today’s highly competitive market. “The best companies use funding to scale rapidly and own the market,” he says, “it’s not a tradeoff."