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.

Comments

Look outside of Silicon Valley.

[jellomizer]

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.

Re:Look outside of Silicon Valley.

[jeff4747]

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.

And then you get to find out what "massive staffing problems" are.

You can't just declare "We have an incubator and are cheap!". Companies are going to need skilled workers to hire, and rural towns as well as Upstate NY do not have a large supply of those. Skilled workers are moving away from rural towns and out of the rust belt in general.

"But we're cheap" will not reverse that. Because you're cheap. They want a nice place to live and raise a family, and that requires spending money on schools an infrastructure that you can not do while fighting to be the cheapest place.

Finally, the people running the business are going to have to want to live there. If you don't have a super-rich part of town for them to live in, they're not coming.

Re:Look outside of Silicon Valley.

[DerekLyons]

I'm not so sure about that. Unless you're building a company out in the middle of nowhere, it seems like it'd be a perfect opportunity for the right people to ditch SV and live somewhere less hectic

You're missing the key thing that makes and keeps SV so attractive despite it's disadvantages - if the startup you're working for folds, there's ten others hiring tomorrow. You don't have to move, you just change your commute. If the startup you're working for in Bumfuck, NY folds... it's going to be much harder to find comparable work without pulling up stakes. (And much harder to jump a sinking ship.)
 
This also works to the disadvantage of the employer. You're no longer competing to hire the best currently available, but the much smaller pool of the best currently available willing to re-locate to Bumfuck, NY. It's also harder to attract capital because of the same density issues that make SV attractive to employees.

The bubble is running out of air finally?

[ErichTheRed]

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.