investment in VC firms also lags investment by VCs. As a result, you can't look at the fact that deployed capital currently exceed AUM and conclude that somehow the trend will continue. I fully expect VC firms to raise more money as there are more investible opportunities.
To put it concretely, there is a state of the world in which VC firms leverage up (at very low rates), reducing the amount of money they need to accept upfront. Imagine that the firms arranged for a 2x leverage scenario. Then, they would only need about 7.2 B to service the 14.3B investment, much less than the 8.1 B invested
And as far as market moves are concerned, the fact that even smart money is getting slammed in the market moves suggests that most asset classes are poor short-term investments. And for those things that are doing well (e.g. gold), margin pressures and other actions (e.g. redemptions) are slowly forcing people out of those markets. In fact, he admits as much: " A number of sharp daily swings highlighted the volatility that makes venture capitalists and other investors nervous about investing." nervous about investing in equities and derivatives markets, not in startups which aren't subject to the whims of the stock market.
"[Investors are] nervous about investing in equities and derivatives markets, not in startups which aren't subject to the whims of the stock market."
Um...what? I know that around here people tend to focus disproportionately on the "exits" involving Google buying dinky, 2-person companies for talent, but industry-wide VC returns are predicated almost exclusively upon stock market performance. IPOs don't do well in bear markets, and if there's no IPO market, there's no venture capital. If there's no VC, there's no angel investment. Google can't prop up the whole ecosystem.
It might take a few years to shake out (especially to work its way down to the angel investors), but if the recent bear markets hold, the money will do what it's always done in bear markets: go to cash, bonds and other conservative vehicles -- even if it means taking a small loss. The hypothesis that people will suddenly start making speculative investments because bond yields are low ignores the very factors that are making bond yields low in the first place.
Is down IPO market due to bear market or SOX regulation?
I think IPOs went down well before 2008. Classic unintended consequence, where SOX hurts IPOs, which hurts VCs, which hurts startups, which hurts job creation...
Companies have been postponing IPOs due to crappy market conditions for several months now. Did Sarbanes-Oxley have something to do with it? Yes. Is it the exclusive problem? Obviously not.
