Note from Editors:
Some observers are comparing Venture Capital #investments today to the investments made during the bubble market of 2000. However, the author argues that the comparison is not appropriate, and presented statistics to support his contention. He said that even mutual funds and hedge funds are moving into the space that venture capitalists invest in, and as “new #investors refill the punch bowl, the party might continue. But that party is different from the one investors attended in 2000.”
by Scott Shane
Venture capital investments in young companies hit $17.5 billion in the second quarter of this year, PricewaterhouseCoopers and the National Venture Capital Association (NVCA) reported recently. Observers are starting to compare the current market with the bubble market of 2000, but I don’t think the comparison is apt. The amount of money involved remains far below 2000 levels, and the #funding scene is very different to what it was 15 years ago.
Let’s start with the statistics. While the amount venture capitalists will put into young companies this year is on track to exceed the $49 billion that the industry invested in #startups in 2014, the amount will fall far short of the $144 billion (in 2015 dollars) that the NVCA reports venture capitalists put into companies in 2000. Even the second quarter’s $17.5 billion of investment in young companies isn’t that high by comparison. In inflation-adjusted terms, second quarter of 2000 investment totaled $38 billion.
Venture capitalists are doing far fewer deals than they did 15 years ago. In 2000, venture capitalists made 8,042 investments. Last year, they completed only 4,361, the NVCA data show. The most recent figures – those for second quarter of this year – show that number of investments made was only 56 percent of the level in the same quarter in 2000, PricewaterhouseCoopers Moneytree finds.
Fewer venture capitalists manage less money now than back in 2000, NVCA data show. Fifteen years ago, the industry had $331.5 billion (in 2015 dollars) under management. In 2014, it managed less than half that amount – $158 billion (in 2015 dollars). The number of investors is likewise down significantly. In 2000, there were 1,704 venture capital funds; in 2014, there were only 1,206.
Today, venture capital money is flowing into much later deals than it did in 2000. At the turn of the millennium, 17 percent of the investment dollars went into later-stage deals, versus 25 percent in 2014, NVCA statistics show. In 2000, 73 percent of venture funding went into follow-on deals rather than first-time funding. Last year, the follow-on funding fraction was 85 percent.
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Curated from Venture Capital Isn’t Partying Like 2000
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