When you’re in a boom, it’s always hard to see if a down quarter is a welcome correction or the beginning of a slump. For venture capital, Q3 could be either. Based on data from Pitchbook, the number of Q3 financing were down significantly: 22% from the second quarter and 34% from the same period last year. However the dollar amounts rose: the $14.1 billion invested in Q3 is up 13% from Q2 and a whopping 81% from the same quarter in 2015.
The difference here is that early-stage financings are at their lowest point in five years, while late-stage deals have risen. But the late-stage surge likely to create significant compression as these firms run smack into the stagnant IPO market for venture-backed companies, which have hit a five year low. Venture-backed IPOs totaled just $9.2 billion (compared to the $15.5 billion a year before). And while M&A exits have held their own, there is some new uncertainly about the future.
Even VCs think the party may have gone on too long. Note the shift in tone from the effervescent Mark Suster, who in May of 2012 proclaimed that it was Morning in Venture Capital but this past September his sentiments had changed all the way to Why I Fu**ing Hate Unicorns and the Culture They Breed. What happened to the bright and cherry venture morning? Suster puts it this way:
Somebody posted too many party fliers. The uninvited crowds have all turned up. The people here don’t respect your parents’ furniture, are throwing beer cans in your back yard and there’s a dude passed out face down in your sister’s bedroom.
And like party-goers everywhere, when it comes time to clean up, you probably want to be somewhere else.