My valuation and financial consulting business, Alteris LLC, has worked with startups and early stage investors in the USA (including Silicon Valley), Europe and Africa. We track activity in this market and will periodically report on that here.
For definitional purposes, we define venture capital as investments into early stage businesses. Private Equity is investing in later stage business.
New business, venture capital and startups and are a critically important part of the economy in the USA. I recall reading where over 1/3 of all jobs in America in the last 20 + years came from this source.
In the second quarter of 2019, exuberance was robust for the early stage/venture capital market.
The quarterly PitchBook/National Venture Capital Association (NVCA) Venture Monitor reported as follows: “Almost everything is getting bigger in venture capital. Fund-raising remains strong, mega-deals are on the rise, and venture-backed exit activity hit a quarterly record of $130B+.”
In the middle of all this positive discussion I am reminded that the goal of institutional investing in technology startups is to generate innovation with groundbreaking potential that disrupt large existing markets and create whole new markets. Institutional investors are looking to hit home runs, even grand slams, not just generate a positive return on each investment. That’s the core business model of the professional institutional investors.
For most business startups, generating a profit and a good living for the owners is the goal. So its important to know your purpose before starting a business.
But with all the venture capital market excitment, early stage deal activity has slowed very recently. The PitchBook/NVCA analysis included754 investment deals during the quarter as early stage which is the lowest number since Q4 2016.
Though there is a trend to larger deals at every stage of the investment process, dollars committed to first financings during Q2 were at $1.64 billion. There were just 530 first VC financings during the second quarter, the lowest quarterly number since Q3 2010. This was the second lowest quarterly figure since Q3 2013.
There still remains plenty of good deal opportunities. The cause of this is that institutional money is being applied to investments that are closer to anticipated exit. In other words, fewer startups and more later stage investing.
