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Seed Funding Slows in Silicon Valley (reuters.com)
The bloom is off seed funding, the business of providing money to brand-new startups, as investors take a more measured approach to financing emerging U.S. technology companies. From a report: Seed-stage financing has been sliding for the last two years, with the number of transactions down about 40 percent since the peak in mid-2015, data show. Dollar investments in fledgling companies have also declined, although less dramatically, dropping more than 24 percent over the same period. The slowdown comes despite an explosion of interest by wealthy individuals and foreign investors looking to park money in the next big thing. And it has potentially big implications for Silicon Valley. Early-stage funding is the lifeblood of a technology ecosystem built on risk-taking. Denied critical resources in infancy, companies can't hope to scale quickly enough to unseat incumbent industries and grow into the next Uber Technologies Inc or Airbnb. "The reason why startups are disrupting companies in the 21st Century is not because they are smarter. It's because they have capital to do so," said Steve Blank, a serial entrepreneur, startup mentor and adjunct professor at Stanford University. [...] The zeal that prevailed just two years ago has faded. Seed and angel investors completed about 900 deals in the second quarter, down from roughly 1,100 deals in the second quarter of 2016 and close to 1,500 deals during that time period in 2015, according to a report released last month by Seattle-based PitchBook Inc, which supplies venture capital data. The dollar amount provided by seed and angel investors was $1.65 billion in the second quarter. That's just shy of the $1.75 billion for the same time period of 2016 and down significantly from 2015, which saw $2.19 billion invested into fledgling startups.
that's where the spec money is going
Is this the dreaded Dot Com-style collapse that I've been hearing about for the last two years or so?
Like a lot of business incubator locations. There is a point where it is no longer the home of fancy startups and the home of the boring business. The cost of living is so high in Silicon Valley, it is too expensive to start a company there. However you can start a company in the newer business incubators say in Upstate NY, or in a rural town trying to attract technology firms.
The investors are following the new businesses, so a small business that can pay the rent for their business and their living for less than a $2000 a month. While selling products at the same price as the more expensive locations.
Also the 1990 New Economy that sparked Silicon Valley, had been proven a great failure. So while technology is hot again, it is far more reserved, and will not classify a pet food store as a tech company because it sells its product on the internet at a loss.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
Wouldn't they be more useful in the San Joaquin Valley?
We're late in the cycle so there is little opportunity for a startup to exit. Really dumb money is entering the market along with increasing oil prices should pop the bubble. Really dumb money will deny it and hold for big losses as the market collapses...
If only he would stop tweeting.
Damping absorbs vibrations. Dampening is caused by moisture.
The capital is available, but the rich have bribed the government to pass laws making it too expensive for the poor to compete for capital and compete against the rich. The rich pass along the extra costs to their customers, the poor, who vote for the bribe-taking government for relief.
Every week, I see stories that make me check whether it's 2017 or 1999/2000. I'm honestly glad to see that fewer crazy startups with dubious chances of profitability are getting money. There's legitimate investment and then there's chasing an IPO fueled by stupid peoples' money.
The thing that's different about this bubble is how slowly it inflated and how slowly it's deflation will likely be. I think most of this is due to the public cloud. Back in the 90s it took a massive purchase of datacenter space, hardware and network connectivity to "get big fast" like everyone was trying to do. Now, the VCs just have to pay the AWS, GCP or Azure bill every month instead of putting up millions in up front infrastructure costs. It leaves a lot more capital free for expensive offices and employee perks...er...I mean, strategic R&D investment.
... anyone owning or renting in CA would immediately experience a quality-of-life bump. ...
On paper, yes. But quality of life for most people is measured by more than the footprint of their living space. They also want to know that they can meet people like them, that they can have a good social life, that their family will be accepted, that their kids will have access to meaningful activities and academics, etc...
For example, I have run into a number of people who have faced a lot of discrimination in a certain state because of their ethnicity or the color of their skin. They wound up fired and broke and in Seattle trying to build a new life, and they're so much happier than when they had a job elsewhere but were dealing with that kind of mistreatment and much less social acceptance.
Real lawyers write in C++
Screw you VC!
Keep on sucking until you do suck seed.
I just turned down a job with a VC funded startup in the Valley because I can live better where I am compared to sharing an RV with 3 co-workers to live in the Bay Area. Great place for a career, nice place to visit but my 4 BR house I bought for 250k where I live would cost me a million there. Nope.
Seed funding for new startups is down. No need to qualify for Silicon Valley. This isn't a geographically isolated problem, or a problem with a single field. It's a national pattern that is also present in biotech, hardware, services, etc.
This is very significant. Generally, small businesses growing into medium and large business drive the economic growth of the country and account for most of the new job creation. Last year, we were already at a 30 year low for population adjusted rates of small business creation (last time it was this bad was stagflation in the 70s).
Something is broken.
Hyperbole aside, I speculate this is at least in part due to the rise of the likes of Kickstarter. If I were to found a brand new startup, I would find the prospect of launching a crowdfunding campaign far more appealing than doing the traditional venture capitalist circuit. In the latter, I would have to morph my exciting idea into a business-bull^H^H^H^Hspin^H^H^H^Hspeak plan, pitch it again and again to people who - at best - only get the vaguest clue of what I actually want to do, until one of them decides to fund me over the next guy because my accent reminds them of an old business partner. And then I would likely get a deal with a lots of strings attached. Sure, launching a good crowdfunding campaign also takes a lot of effort, but at least I can speak to the part of the crowd that already has some interest in the subject, so my pitch would be more like: "This is the product I want to make, this is why it's exciting, this is why I can pull it off, and these are the perks you will get when becoming a backer." If done right, at least some genuinely interested people will pitch in, and the strings attached to the deal will be chosen by me.
An extra perk (for some business models) is that I get a crowd of tough beta testers who are genuinely interested and invested in the project and not afraid to tell me their opinion. I mean, not that it would ever cross my mind to abuse my esteemed benefactors as beta testers. In fact, forget that I brought it up at all.