While most startuppers are desperately applying for every opportunity to get funded and often give up, investors are actually not in the best mood either. In recent years, venture capital has experienced major shifts and has been influenced by several devastating bubbles in tech and real estate. This deal-chasing led to inflated startup values not supported by any tangible facts like company’s profitability roadmap or unit economics. If only VCs managed to resist the general tide and avoid jumping on the bandwagon, they could probably find themselves in a more favorable position by now.
The current climate in the global VC industry is well reflected in the following statement by Warren Bufflett, one of the most successful investors in the world: “Be fearful when others are greedy and greedy when others are fearful”. Exactly: investors now think twice before applying for their money. However, the so-called “fear of missing out” still often drives capitalists to make impulsive investment decisions that eventually turn to be disastrous for their money.
So what has happened in the last two-three years in VC industry? In short:
-after a major downshift in 2013, VC funding demonstrated the considerable rise of 65% in 2014, with a leading share of late-stage funding;
-in the first half of 2015, there was a kind of investment boom characterized by numerous easily made deals, often with impressive amounts;
-over the last few months, the number of investment deals has dramatically shifted, mostly because of the fear of uncertainty caused by certain corrections in the tech industry.
Currently, there is a definite atmosphere of over-cautiousness. Now many VC firms pass by the positive issues of a startup project that could be fruitful from an investment perspective, and instead go look for something that might go wrong. The old rules of fundraising do not work anymore: chasing a huge sum of money at a single investment round in the current environment of suspicion is not the best strategic choice for startups. Entrepreneurs in search of capital had better split their capital demands into several small rounds – more likely to succeed.
What is next? 2015 was featured with a record investment activity, but the first quarter of 2016 have already demonstrated a significant slowdown in deal activity (total VC funding in the US was equal to $13.8 bln, compared to $38.7 bln in the third quarter of 2015). The latest activities in the venture capital sector are pushing the startup valuations back to the real numbers (mostly concerned with tech unicorns), which lays a great foundation for high-quality investment deals in the future. Startups and entrepreneurs will have to suffer the lack of financial support for a while since there is still a kind of lockdown on funding.
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