EDITORIAL

As Venture Turns, Let’s Keep An Eye On Scale

tl;dr: Panic! Just kidding, don’t.

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The venture capital slowdown is here. As Mattermark reported over the weekend, venture dollars are finally trending down after a flat first quarter.

What’s going on? So far this year, compared to the same period one year ago, venture capitalists have deployed 11 percent less total capital. Oddly enough, in terms of total rounds, venture is up so far this year. But total bets in dollar terms, which will likely worry the startup world.

Is the change life-ending? No. Is it notable? Yes. That’s to say that an 11 percent swing is measurable, and notable, but probably not enough to panic over.

I say that as so far this year we’ve seen too much complacency, followed by too much panic, followed by too much complacency. January, March and May nearly feel like different years, as opposed to five months of the same two quarters.

With that in mind, let’s try and keep the venture market in perspective lest we forget just how big the venture world really is.

How Big Is Venture?

There are two numbers that I keep in mind when I consider changes in today’s venture capital market. First, the industry raised $12 billion in the first quarter, a surprisingly high figure. In fact, it was the strongest haul for the industry since the second quarter of 2006.

The other number is Apple’s $10.5 billion in net income that it earned in its most recent quarter. That sum, of course, is off several billion from its year-ago result.

In short, the aggregate quarterly raise of the venture capital industry is in the same ballpark scale of the diminished profit of technology’s leading company.

For a blatantly apples::oranges comparison, I find it oddly comforting.

Why? Because yes, venture capital may cut valuations, and it may slow its investing cadence, but its total firepower is minute compared to the industry that it has helped create. So it’s a damn critical financial category, but hardly everything.

Other Movements

Something else on my mind over the past few weeks has been the value decline Apple has suffered. Taking a look at its all-time high that took place just over a year ago, the company has lost more than $200 billion in value. By itself.

The usual response to that figure is to call it 20 Twitters, or 3 Ubers, or infinite Theranoses, but let’s do something different today.

How many years of aggregate venture capital’s own capital raises is that equal to? I ran the figures, and Apple’s own decline in value is roughly equal to the amount of money that venture capitalists raised from their LPs from 2007 through 2015.

And that’s being generous to the venture community in terms of rounding.

Small In Aggregate, Big To You

It’s agreed in the financial world that venture capital is small compared to other financial categories.

That fact isn’t very useful to the individual entrepreneur, however. The comparison of venture capital to other financial segments doesn’t mean a damn thing when they are staring down a dwindling bank account and a tough fundraising environment. The macro point can be, in that case, useless on the micro scale.

But we can’t mistake the personal for the aggregate, and therefore, we must at least try to keep things in perspective.

All this is to say that as things either get worse, or stabilize, we are always talking about a single form of capital, and one that isn’t so big to begin with. So don’t panic.

Unless, of course, your burn rate is insane and you are nearly out of cash. Then you should panic.

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© Mattermark 2017. Sources: Mattermark Research, Crunchbase, AngelList.
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