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An Introduction to Venture Capital

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State of the Worldwide Venture Capital Industry Today

Posted By Fred Hale, Feb 5, 2013

Venture capital numbers from 2012 reveal a curious trend. While the number of deals is on the rise, the amount of funding is dropping. A surge in the number of deals may be expected from the ever-increasing number of startup companies, but then why the drop in funding? These developments come on the heels of decidedly negative performances on the IPO (initial public offering) market by some notable tech companies, including Facebook. Though some writers believe the IPO market is poised for a recovery, it’s clear that more and more companies are turning to M&A (mergers and acquisitions) as an alternative to IPO. M&A activity is currently the highest it’s been since 2009. It’s difficult to draw a causal relationship, but some believe these developments, along with the failure of an abundance of investor-supported startups, may be adding to a general uneasiness in Silicon Valley investors. These investors have reportedly become more cautious with their money, which some believe is actually a positive trend for the venture capital market.

The world of venture capital currently revolves around Silicon Valley. There is no area in the world with more investment opportunities. What makes Silicon Valley stand out from the rest is the inordinately high concentration of startups and entrepreneurs, all living within a few miles of each other. Silicon Valley also stands out from the rest for its reputation of having investors who are loose with their money. The unprecedented demand for funding has allowed many less-experienced investors to enter the market. Many of these investors have very little business experience, with some perhaps simply coveting the chance to put “angel investor” on their resume.

The further one travels from Silicon Valley, the stricter investors seem to get in terms of giving up their money. Chicago, for instance, is famous in the industry for placing high value on financial performance. A startup company in Chicago has very little chance to get anything from an investor until it has a solid amount of revenue to show for itself. The situation is all the tougher in Europe, where investors typically require a showing of a sustainable business model. Some estimate that any given startup may easily be valued two or three times higher in the Valley than in Europe. As a result, startup companies from all over the world have left their hometowns over the years to try their luck in California.

However, the recent failings of some startup companies, together with a drop in overall funding, may be a sign that the playing field is leveling out. Silicon Valley investors are reportedly getting tougher, with startups being asked more and more, “What’s your business model?” Meanwhile, other areas of the world are noticeably putting a priority on developing a solid forum for venture capital. Canada, for instance, recently set aside $400 million to stimulate private-sector investments in the country. Chicago, New York, and Seattle have gradually established what some consider a fully functioning startup ecosystem, with other cities going that direction as well. With developing options for investment, and Silicon Valley’s loss of image as a “fantasy land” for startups, venture capital may very well be on the verge of becoming a more global industry.

Source (TheNextWeb): http://thenextweb.com/insider/2013/01/16/vc-funding-increasing-for-mobile-and-healthcare-startups/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheNextWeb+(The+Next+Web+All+Stories)

Source (TheNextWeb): http://thenextweb.com/insider/2012/12/02/the-valley-vs-the-rest-the-state-of-the-venture-capital-industry/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheNextWeb+(The+Next+Web+All+Stories)

Source (TheNextWeb): http://thenextweb.com/insider/2013/01/15/canadian-prime-minister-earmarks-400m-to-stimulate-vc-investments/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheNextWeb+(The+Next+Web+All+Stories)

Source (TheNextWeb): http://thenextweb.com/insider/2013/01/07/mo-money-less-funds-182-us-based-vc-funds-raised-20-6b-in-2012-most-since-2008/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheNextWeb+(The+Next+Web+All+Stories)

Source (Techcrunch): http://techcrunch.com/2012/11/30/i-see-a-glass-thats-twice-as-big-as-it-needs-to-be/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

Source (Techcrunch): http://techcrunch.com/2013/01/27/report-there-were-94-tech-ma-deals-in-2012-above-100m-average-deal-value-was-717m/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

Source (Techcrunch): http://techcrunch.com/2013/01/23/california-mergers-acquisition-activity-reaches-highest-level-since-2009/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

Source (Techcrunch): http://techcrunch.com/2013/01/18/surveymonkey-ceo-talks-about-why-his-company-wont-ipo-after-raising-794m-and-reveals-other-big-name-investors/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

Source (Techcrunch): http://techcrunch.com/2012/12/22/from-silicon-valley-to-europe-is-the-u-s-series-a-crunch-affecting-european-startups/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29

Source (AllThingsD): http://allthingsd.com/20130123/stop-bashing-the-ipo-market-its-ripe-for-recovery/