There are lots of data points that one could utilize to get a sense of the VC markets, including the amount of startups and the number of VC fundraisings. The fact is that deal volume and valuations are getting higher dramastically and non-VC capital has given the market momentum as well.
However, these data points are often lagging indicators as one gathers data on immediate VC perceptions.
Source: Dow Jones Venture Source
Aside from the economic slowdown of China, oil prices, and other issues that might cause market fear. Frankly, VC capitalist thinks twice before investing at later-stage valuations as they know they’ll have to exit or sell to a company in public market. Besides, the stocks are declining steeply.
Nonetheless, there are still companies investing large amount of capital in the VC market.
Recently, Index Ventures announced that it had closed its $550 million investment fund for early-stage investments. Along with a $700 million fund focusing on later-stage growth investments, the total of the latest fund-raising amount is more than $1.2 billion. Those capital are mostly invested in startups in technology. This fact leads to capitalists and analysts’ concerns — perhaps at times investors have become worried about the overvaluation and plummet of startups.
What to expect for the next 12 or 24 months? In my view, it is certainly no sunshine ahead. The followings are my predictions.
1. Loss ratios increase
2. The amount of down rounds increases
3. More sophisticated and structured rounds appear
4. Harder for startups to raise capital
5. Relatively tougher to reach expected goals for VC investor and startups
To summary, there will be a clearing out of outdated and non-profit-generating startups. After the washout, a new business cycle would start and new companies would grow. At this stage, the valuation and expected growth tends to be more realistic and coherent to the market. Most importantly, entrepreneurs would be careful of utilizing every pennies from VC.