Looking at venture capital investment during the first half of 2016, Redpoint’s Tomasz Tunguz has a nice piece (and several graphs) on the flux in the fundraising market — early stage deals (Series A) have nosedived by a whopping one-third, as have later stage financings, while expansion stage financings (Series B) are up substantially. This view is a little bit more light than heat, as even with this data Series A investment is still higher than at any point since 2010 except the last few quarters. But venture capital is all about the present and cares little for the past, so it’s worth a look.

Tunguz’s theory is that the repricing of Series B round during the last few quarters has created more value in that area for investors, while the Series A market is “catching its breath” after an unsteady but considerable rise from 2013 (his data is below).

My guess is a little different — and let’s be honest, there are so many variables in play here we are all guessing (remember the “Series A Crunch” in late 2012 that appears, in hindsight, to actually mark the beginning of a Series A Boom?). I think it has more to do with speed and volume.

The idea that most things in business are moving more quickly is hardly new news. Clearly for software companies (who now compose the majority of venture capital investments) everything is faster: speed to market, more rapid product life cycles, viral customer acquisition, even faster failure. With the ability to grow a company from idea to market in mere weeks there are more companies being formed (although note that startup activity declined sharply from 2009 to 2014 and is just now on a path back). These nascent firms rely on earlier (and smaller) investment from non traditional venture sources (including the myriad seed stage funds, Micro VCs, and AngelList syndicates). The fundraising market is faster.

In addition (and also in my opinion) we are very much in an entrepreneurship gold rush — but one where the boom is characterized by the folks selling shovels: virtually every city seems to have some sort of startup programming, an incubator or two, and a variety of crafted real estate options. The boom of support services infrastructure and a decline in capital costs for startups has lead to a bigger funnel of newly created firms. At the earliest stages, there is more volume.

Together, the mix of speed and volume at the earliest point of the startup lifecycle resembles the sprint at the beginning of a marathon where runners jockey for initial position. Survivors are those companies that develop into early market leaders with clear third-party validation and considerable traction: when the traditional institutional venture money comes in, it is more likely to look and feel like a Series B expansion round. That’s ok with most VCs as they are able to reduce risk in a highly volatile environment even if the round is more expensive — would you prefer to bet on a marathon winner at mile five or at the starting line?

So in my view, the movement to Series B deals is a sort of market traction jump-step from a seed amount to an institutional round (and the jargon is self-selecting — you can call a round whatever letter you want). It’s less that Series A is in decline than that it is in disguise.

Venture Capital: Variance, Speed and Volume