Can I make a somewhat contrarian prediction. Feel free to trash it. I'd like to hear where I went haywire with my assumptions.
1- The real glut is an abundance of capital. With interest rates depressed & a stock market fairly valued, & that's not counting the immense wealth generated in other parts of the world by the commodity bubble. There are very few remaining outlets for productive capital. Say what you want about the valley now, it's still a great investment destination/asset class.
2- If the returns on the seed side start to dip. What would stop stop seed investors to graduate & become (smaller) VCs. After all, Investing is their trade, they're not going anywhere.Slowly, by capillarity, Seed investors will become series A, Series A will rise to being series B...& so forth. With the 500 investor limit being lifted. Maybe IPOs are going to be pushed even further down the cycle..until profitability is established & business models flushed out.
3- Crowd-funding is only getting started. It'lll get worse (kickstarter awareness growing, slowly but surely displacing game publishers for example.) & with the imminent enacting of the JOBS act, even more money will flood the Valley, just look at what AngelList, FundersClub, CircleUp are doing even before the law takes effect. All of this results in capital that's being displaced & that's going to look for new outlets.
4-Startup capital needs are collapsing. ( Exhibit A :Amazon announcement today.) Bootstrapping wil soon become a viable option (Just how much would you need to recreate Instagram today.)
What if we're witnessing a strategic & irreversible shift in favor of entrepreneurs & an expansion of innovation centers beyond northern California . Money after all is a commodity, it's a miracle that a particular geography & an investor class were able to quasi-monopolize the world's innovation for the last 15 years.
It’s just getting easier to raise early rounds and harder to raise later rounds,” says Y Combinator’s Paul Graham over email, hewing to the latter view that this has merely become startup life in the Valley. “Investors will pay to see how an experiment turns out, but they are brutally unforgiving, if it doesn’t turn out well… What used to be an obelisk is now becoming a pyramid.”
"If the returns on the seed side start to dip. What would stop stop seed investors to graduate & become (smaller) VCs."
The math doesn't work. Early-stage investments are risky, by nature, and so investors take a scattershot approach to allocation -- it's safer to invest $10k in 100 startups than to drop $1M on one, because one of those 100 startups will probably more than offset the losses from the other 99. Thus, it's a conceivable thing for a moderately rich individual to do. But there are comparatively few people who can afford to invest $1M+ in a single company. The risks are too high.
The whole pyramid won't just "shift down" a level because at some point (the point we're calling "series A"), the investments have had some time to prove themselves in the marketplace. Investors get a lot pickier, because they have a lot more information.
TBH I used to take these warnings very seriously, but after the ominous "RIP good times" not only did everything keep going as usual but there were even more wantrepreneurs getting funded and valuations got even frothier.
As many have said before the beginning and the end of easy funding are low interest rates. The moment rates go up most VC funds will go dry and startups in general will have a hard time getting any funding.
Good points. vc requires some governance and BOD level skills. [1] angels may or may not have, they tend be more product focused and hands-off. etc. Look at the problems YC was having winding down with "founder breakups" etc.
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[1] in addition to cash, business skills, contacts, etc which are obvious but omitted for brevity. angels if they have these skills is more likely from previous works, and not from being an angel per se.
1- The real glut is an abundance of capital. With interest rates depressed & a stock market fairly valued, & that's not counting the immense wealth generated in other parts of the world by the commodity bubble. There are very few remaining outlets for productive capital. Say what you want about the valley now, it's still a great investment destination/asset class.
2- If the returns on the seed side start to dip. What would stop stop seed investors to graduate & become (smaller) VCs. After all, Investing is their trade, they're not going anywhere.Slowly, by capillarity, Seed investors will become series A, Series A will rise to being series B...& so forth. With the 500 investor limit being lifted. Maybe IPOs are going to be pushed even further down the cycle..until profitability is established & business models flushed out.
3- Crowd-funding is only getting started. It'lll get worse (kickstarter awareness growing, slowly but surely displacing game publishers for example.) & with the imminent enacting of the JOBS act, even more money will flood the Valley, just look at what AngelList, FundersClub, CircleUp are doing even before the law takes effect. All of this results in capital that's being displaced & that's going to look for new outlets.
4-Startup capital needs are collapsing. ( Exhibit A :Amazon announcement today.) Bootstrapping wil soon become a viable option (Just how much would you need to recreate Instagram today.)
What if we're witnessing a strategic & irreversible shift in favor of entrepreneurs & an expansion of innovation centers beyond northern California . Money after all is a commodity, it's a miracle that a particular geography & an investor class were able to quasi-monopolize the world's innovation for the last 15 years.