Venture Investment Crisis Inevitable

    shoeRecently, among venture capitalists, opinions about the imminent crisis of the investment business are gaining strength. Many of them share their thoughts on what is happening with the industry and its future. So Paul Martino (Paul Martino) believes that in the coming years, a crisis is inevitable and its results for many companies involved will be completely disappointing.

    Paul is the CEO and co-founder of Aggregate Knowledge . Previously CTO and founder of the Tribe Network , acquired by Cisco (one of the co-founders of Tribe was Mark Pincus of Zynga). He has held senior business development roles at Intertrust and SkyPilot.
    In 2011, when we opened Bullpen Capital , there were about 30 micro-venture funds and everyone knew them. Today, four years later, there are more than 220 of them and this number is growing.
    This situation is reminiscent of the bubble of the year 2000, when there were more than a thousand such funds, and now a little less than a hundred of them are still active. The rapidly growing number of venture capital funds is already a bell of the impending micro-venture crisis, which will be a shock for many small funds.

    How did we get into this again? Aggressive hunting for “unicorns” leads to venture “big money”, which can greatly dilute the capital of small funds in investments, which unequivocally estimates the prospects for many of them are predictably gloomy. Now the “boom” is still ongoing, and about a hundred more funds are expected to appear this year, and possibly another one next year. It is difficult to predict when it will all end, but the end will certainly be.

    As a result, many of these micro-venture funds that do not have in their portfolio the numerous “hits” necessary to survive will die a slow death. Different funds may have completely different problems: fund models may not allow you to seize a lot of property in invested companies; they may not have the right capital to get the right share; funds may face structural competition from larger funds.

    Today, the amount of money in the seed stage is potentially four times more than it was five years ago, which creates an amazing climate for founders, but this is worrisome among investors.

    The moment will come when only the delivered results will matter, and not the logos on the wall. When this happens, consolidation will begin, and only truly differentiated firms will survive. Despite this, many are confident that there will be another stage of this bubble and continue to work, but the smartest ones keep their finger on the pulse.

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