We think studying investment decisions made by venture capital firms is a useful activity. The CEOs of early stage technology businesses gain important insights into product life cycles by observing how the venture capital financing sector opts to commit its cash. From what we can see, we think the personal computing paradigm, which has been in place since the mid 1980s, is approaching an important crossroads. We wouldn’t be surprised if innovation grinds to a halt as this movement plays out.
On June 30, 2013, the Venture Beat website published an article authored by Navin Chadda, A ‘Silver Linings Playbook’ approach to Venture Capital. Mr. Chadda summarizes findings presented in the most recently published year book of the National Venture Capital Association: “Key findings include:
◾In 2012, the VC industry raised $20 billion vs. the almost $100 billion in 2000;
◾92% of this capital went to existing managers (vs. first-time managers) and 48% went to 10 large firms;
◾Overall, about 522 firms are estimated to be active, and some believe this number even lower closer to 100 defined as firms that have made at least 4 investments over the last year;
◾The median fund size for 2012 was $150 million, and the overall deal pace has come down to slightly over 750 investments per quarter;
◾Although some momentum companies are being bid up, valuations are trending lower overall according to Dow Jones Venture Source data.” (quoted from Mr. Chadda’s article, a link to which has been provided above).
Across the board, the venture capital community is operating at a mere fraction of its former self (by “former self” we mean the level of activity Mr. Chadda reports for 2000, the start of the “Dot Com” era). We’re not sure this is good or bad news. All we can say is things are slowing down, dramatically. With a lot less capital flowing into early stage technology businesses from this sector, some proportion of innovation will slow down, as well.
The result will be status quo, at least for the foreseeable future.
© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved