
Venture Investing Just Had Its Biggest Q1 in 15 Years, Says PwC Report - ilyaeck
http://recode.net/2015/04/16/venture-investing-just-had-its-biggest-q1-in-15-years-says-pwc-report/
======
lquist
It is important to note that these numbers are NOT inflation adjusted. How
much of a difference does this make? Actually fairly significant. 1 USD in
2000 is the equivalent of .73 USD in 2015. So VC investment still needs to
increase by 37% to equal Q1FY2000 in inflation-adjusted terms.

Source:
[http://www.usinflationcalculator.com/](http://www.usinflationcalculator.com/)

Edit: Thanks gkop

~~~
MCRed
CPI dramatically understates inflation, because non-compressible, and non-
substitutable items are excluded (such as fuel.) The basket of CPI goods is
arbitrary and changed from time to time to massage the numbers, and the things
that would show inflation the best are excluded from the calculation.

Unfortunately, the correct measure of inflation is monetary inflation, but the
fed stopped publishing the numbers to derive that over a decade ago-- about
the point when inflation was regularly exceeding %10 a year.

At this point, to be honest, with the FOMC's efforts to "manage" the
"markets", which really means, manipulating the economy to make the Fed's
inflationary policies seem less damaging, and the fed's direct monetization of
treasuries (an open secret) the economy is pretty highly distorted.

This makes these kinds of comparisons wrong, but it also means the economy
itself is in a bubble because the distortion obscure the true price of money
leading to mal investment.

Eventually this will no longer be sustainable.

------
adventured
In my opinion the most interesting number when it comes venture investing, is
what the hedge funds are putting in now:

"While venture capitalists poured $11.3 billion into startups in the first
quarter, up only 11% from a year ago, non-traditional funds invested $6.4
billion, a 167% increase, according to a report on Tuesday from CB Insights,
which tracks the market. Two years ago, the outsiders contributed less than $1
billion."

[http://finance.yahoo.com/news/hedge-fund-money-going-to-
vent...](http://finance.yahoo.com/news/hedge-fund-money-going-to-venture-
capital-skyrocketing-180735668.html)

~~~
chatmasta
This is an important point because money from "traditional" funds like Kleiner
Perkins is different than money from "non-traditional" funds, like Goldman
Sachs. Venture capitalists balance all risk within their VC fund, but "non-
traditional" funds can balance risk against other funds. For example Goldman
can balance its real estate risk against its venture capital risk. A reliable
comparison does not exist between "traditional" and "non-traditional" venture
funds because their volumes differ so much. Thus they cannot, taken together,
enable investors to make meaningful inferrences from "Venture capital market"
trends alone. Non-traditional funds see the market differently than
traditional funds, because they are hedged in many different areas.

------
asanwal
The inevitable bubble chatter will pick up steam again. There are many reasons
to believe we're in a bubble and in our view, stronger reasons to believe
we're not.

Here are several in support of a bubble.

1\. There were 9x as many $100 million private financing rounds as there were
$100 million public offerings. People are starting to call these private IPOs
which is a bit of an oxymoron but the point around private market money being
plentiful and even providing some liquidity to founders and early investors is
happening even in some private transactions.

2\. In the first 3.5 months of this year, there were 16 new companies that
raised money at a billion dollar valuation or higher. There were 15 in all of
2013.

3\. All sorts of new money is flowing into the market, i.e. private equity,
hedge funds, mutual funds, corporations and sovereign wealth funds.

Why we are NOT in a bubble.

1\. All of the US unicorns combined are worth less than Facebook

2\. They collectively are worth 3.5% of the Nasdaq 100. Of course, notable
tech companies like Twitter are also on NYSE so the % is overstated.

3\. The public markets have not lost their mind. In fact, they're fairly
hostile to new issuances which despite VC bellyaching is a good thing for VCs
and in maintaing the current climate. When retail investors get burned on
tech, the bubble will quickly pop. But right now, that's not the case as just
calling yourself tech doesn't guarantee a high valuation. The market, while
still far from perfect, treats companies with crappy or suspect fundamentals
with skepticism (see Box).

4\. There is no mechanism that will force a quick contraction. A bubble is
typified by rapid expansion and contraction of asset values. The expansion
part is happening for sure.

5\. But there is not scorecard to provide the contraction. When companies are
publicly traded, you have that daily scorecard to force it, but right now,
it's private money going in and the beauty of the private markets is you can
bury your dead very quietly. In essence, the opacity of the private markets
enables investors to point to any failing investment or investor and just say
"they were dumb money, we are different". And so there is no event that will
pop it.

Notes:

A. I'm the CEO of CB Insights. We track private company financings and exits.

B. A crazy exogenous factor like a disease pandemic, terrorism, a China
meltdown, war, etc are not considered in the above. If I could predict those
with any certainty, I'd be doing that.

C. I gave a presentation at the Quebec Venture Capital and Private Equity
conference this past week on this topic "Bubbles, Unicorn and Our Crazy
Private Markets". It may be of interest if you're interested in the data
behind some of the above bullets.

[https://www.cbinsights.com/reports/tech-bubble-
unicorns.pdf](https://www.cbinsights.com/reports/tech-bubble-unicorns.pdf)

~~~
duncanawoods
>> There is no mechanism that will force a quick contraction

I'm curious - what do you think the mechanisms are for unraveling private
investment over exuberance?

Just for example, if we assumed that valuations are 100x above reality and
things will continue getting worse for a few years. Is it effectively like
sub-prime rather than 2000?

Sub-prime was pretty sudden with banks rushing to exit their positions. What
could happen here? A couple of fire-sale IPOs and then all these investors
have to admit their balance sheets are nonsense? Would this cause economic
contagion or will it be the pension-funds that are left holding the bag?

~~~
lmm
AIUI a lot of the private investment is sovereign wealth funds and wealthy
individuals; some of it is large pension types but those are increasingly just
indexing.

Note how few hedge funds exploded in the 2008-9 crisis. Rather what we've seen
from the hedge funds is several years of underwhelming returns. I wonder if
part of that is slowly meting out the losses that they never declared back in
'09.

Banks are hopefully doing less of the big private investments? (I don't
actually know). In that case this might be the kind of bubble, like the Tokyo
property bubble of the late '80s, that never actually pops, just slowly
deflates.

------
rgbrenner
this is blogspam for the actual press release available here (PDF):
[https://www.pwcmoneytree.com/NewsFeed/GetNews?Title=Q1%20201...](https://www.pwcmoneytree.com/NewsFeed/GetNews?Title=Q1%202015%20MoneyTree%20Report%20Press%20Release)
(everything except the two quotes in the blog post are in the press release +
a lot more info)

All of the historical data is also available on money tree's website:
[https://www.pwcmoneytree.com/HistoricTrends/CustomQueryHisto...](https://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistoricTrend)

Clearly, even after adjusting for inflation, we haven't hit what was seen
during 2000 yet

Note also, that this is the best _first quater_ since 2000... it's actually
10% less than q4-2014 (8% fewer deals).

------
chlestakoff
Bubble predictor?

~~~
woah
No, no, no. This is the new paradigm.

~~~
michaelochurch
New Economy, it was called.

Oddly enough, we did end up with a new economy. Old corporations were torn
down and new ones were built, and cultures generally changed for the worse.
Employee stack ranking was still unusual when Enron rolled it out (leading to
its demise). Open-plan offices for programmers were a minor startup negative
to be put away after 50 people, not something to be celebrated.

We actually got a new economy in the early and mid-2000s (for those who don't
know, 2002-5 and 2008-9 were horrible years for job seekers, especially recent
college grads). It just wasn't a very fun one, and most of the newness had
nothing to do with technical progress.

~~~
jsprogrammer
Early open-plan office designs for the enterprise:
[http://www.romanroadsmedia.com/wp-
content/uploads/2013/10/tr...](http://www.romanroadsmedia.com/wp-
content/uploads/2013/10/trireme.jpg)

More recent:
[http://chsi.harvard.edu/markone/images/HumanComputers.jpg](http://chsi.harvard.edu/markone/images/HumanComputers.jpg)

Putting humans into rows and columns, performing the same tasks, is common
pretty much anywhere you look.

The list is a (the?) fundamental data structure, and the two dimensional list
is an easy extension.

For those who desire control over other humans, it's an easy way to check that
things are (superficially) in line.

[] The trireme design is an arguably effective arrangement in terms of moving
a boat.

~~~
Retra
Anywhere except where you want creative intellectual work to happen.

