In 2014, Dow Jones reported that the amount of venture capital invested in the United States soared to $52 billion, from $35 billion in 2013, an increase of almost 50 percent. How could VC investment increase when VC fundraising declined?
The answer is semantics. The cash that’s now being called “venture capital” isn’t truly venture capital. Instead, the mystery money is coming from asset classes such as mutual funds, hedge funds, private equity funds and corporate venture capital that have started actively investing in venture-backed technology companies. That money explains the rapid rise in investments into venture-backed companies during the past two years.
...vastly more capital at their disposal than traditional venture capitalists. Preqin data shows the hedge fund asset class alone has approximately $3.5 trillion of investment capital.
Why would these asset classes, which have traditionally shunned private technology companies, suddenly embrace them? The answer may lie in the IPO market resurgence. During 2013 and 2014, IPOs produced returns that outperformed the broader markets and that, in many cases, greatly exceeded other asset classes....
The venture capital business is a marathon, not a sprint. ...
While comparisons to the late-90s bubble are inevitable, the froth is different this time. It’s in later-stage companies and being driven by different forces and investors. My definition of a bubble is when a majority of the asset class is overvalued.
The unicorns are driving today’s bubble conversation and, despite their outsized press, only amount to fewer than 150 companies out of nearly 5,000 venture capital-backed companies. Because of that, I’m not ready to call a VC bubble.
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