Venture Capital in Trouble?

It is nearly impossible to accurately predict what will happen to the venture capital industry in the future. Many startup companies rely on venture capital to launch, so what happens when the venture capital industry becomes even more selective?

Prompting these questions are analysts who have been announcing that the venture capital investment cycle was recently at a peak, and the only way it can go is down. This is based on data about venture capital funding from the end of 2015 being compared to that of 2014. The numbers show, for example, that the amount of money give to startups before launch dropped by almost 30 billion dollars in 2015.

However, this does not mean that investors are getting stingy. Rather, in 2015, investors gave 3 billion dollars more to venture capital funding than they did in the year 2014. Still, the number of venture capital firm exits is way down from where it was in 2014, and major public stock markets have not been flowing in any dramatically positive directions.

Surprisingly, the technology sector, a leader in the venture capital world, is also suffering. Revenue in this sector fell in 2015 and sales rose only a little above 3%. This number is not something many people would take note of, much less look at in a positive light.

Furthermore, interest rates have risen, which makes investors less willing to many risky investments. The Initial Public Offering (or IPO) market is also down on its luck. There was an almost 60 billion dollar drop in the value of deals in the economy in 2015. Startups that have traded at a lower than expected value run rampant in the market, even ones that were predicted to trade at high values.

So, what does this all mean? Is venture capital as we know it officially defunct?

Many believe it is. Some experts think that there was an initial ‘honeymoon’ period for startups in which companies were valued at a level that they could not maintain and, now, we know better. Others think it is too early to call any period in venture capital funding a ‘peak.’ The industry is so new that this lull could just be a bump in the road.

Either way, a decrease in venture capital funding is not the calamity that it once was for startups. Many startup companies have gotten more creative in their funding methods, and are therefore able to function with very little or no venture capital funding at all.

As for where the venture capital industry will go in 2016, we will just have to wait and see.

For more information on the venture capital lull, check out this article on Newsfactor.