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Venture Capital Industry Cycles

Published: 5/12/2011 9:04:27 AM


There is an interesting blog post by noted VC Nic Brisbourne that says that the venture capital industry is subject to primarily two cycles: the macroeconomic cycle and the assets cycle.

The macroeconomic cycle can drag down startup performance due to general economic conditions which affect exit valuations both at the IPO and in M&A situations.

The second cycle that he discusses is the "asset cycle". He refers to this cycle as the "weight of money" in the market - when there is less money available, the balance of supply and demand of capital shifts in favor of investors, resulting in lower valuations paid for investment stakes and thus higher returns.

He also mentions a third driver of returns, tech bubbles. These bubbles have more of an effect on the performance of venture funds than the two other cycles. However, the problem is that they emerge periodically and cannot be predicted.

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Don Jones
CEO, VentureDeal

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