After reading this article recently: How Venture Capital Deals Have Changed Since the Great Recession, I shared it with a friend of mine in the VC industry (@rgandhi10).
He responded with an impressively succinct synopsis that he was kind enough to allow me to share:
“It’s interesting, but you can’t look at the data at a high level and get the whole picture. Investments have certainly scaled back (so-called “series a” crunch), which is more of a function of too many [weaker] seed deals getting funded in the first place.
But the writer fails to take into account the real reason investment size has gone down over recent years — cloud computing is 10x better than it was in 2007 and it just doesn’t cost as much to build a company these days from a sheer server/infrastructure perspective.
What may have required $3-5mm in 2007, only takes $500k-$1mm to get off the ground these days. It’s fair to argue that overall number of deals have gone down, but funds can de-risk investments and only put in lots of capital once traction is there, which is why you see a lot more $10mm+ series b rounds these days ([although there have been several larger series a rounds for specific types of companies over past couple of months]).
Anyway, my point is that there are a lot of qualitative factors driving investments rounds down as opposed to concluding that it’s driven by a recession.”