In a down market, investors should be buying and not selling. In the context of VCs, it's probably a good time to fund ventures because the equity they get for their cash will be higher, and it's probably a bad time to exit because the cash they get for their equity will be lower. So, maybe VCs are simply being solid, patient investors.
I don't really think it's fair to single out 2008 as the start of a trend. Hell, money market accounts lost money this year. That is very unusual, and the economy is not doing so well right now. Why would startups be magically immune?
Also, if you integrate the curves to get total funds raised and total value created, this doesn't really look bad.
I think his point was that this has been a year of exceptional events. The fact that even one fund broke the buck is big news; under-performing VC funds are a footnote in comparison.
This will work itself out. If you have an idea for a product that profitably solves a problem for hair on fire customers, you'll still be able to get money. Some of the so-so ideas might not get the amount of time and funding they were used to.
The graph is indeed scary looking, and it's consistent with both Judith Estrin's book "Bridging the Innovation Gap," and an essay I wrote over the summer:
What's supposed to replace VC, exactly? No one likes having to deal with "the money problem", and there are obvious inefficiencies and flaws in the current VC system, but I don't see any obvious solutions or how anything better could be developed at scale.
This is why I qualified my post with "at scale". I don't think there are enough qualified, technologically knowledgeable angel investors out there to cover a significant fraction of the startups that need funding. Keep in mind, also, that although the economy will recover, the glacial retreat of the 20th-century big-box corporations is a rather permanent state of affairs, which means that there will be a lot more people trying to start companies, while the number of wealthy individuals/angels will not increase at nearly the same rate.
its possible that VCs can't assemble the level of funding needed to attack the energy market (for example)...these investments will have to scale out to the hundreds of billions with very long time horizons for returns. most likely this stuff will have to get federal funding, and much of it already does from nsf, doe, darpa, etc
boo-fucking-hoo. a down market hurts everyone. well maybe they should use this lull to re-educate themselves for the future. guess what folks, sandhill road will be as dead as wall street unless you try expanding past websites. let yc fund this low-iq crap. time to bone up on all that chemistry you skipped in high school, you'll need it if you are going to evaluate greentech, nuclear, etc
