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Look at the data – Technology Flow

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A recent article Bloomberg asserts that venture capital activity is on the verge of collapse, but I do not believe this to be the case.

This story falls short when you consider data beyond 2021. In the US and globally, VC activity in 2022 is on track to surpass the long-term trend that began in 2006 for total investment. Instead of a fall, the data points to a healthy “reversion to the mean” in 2021 following a surprising and historic hype cycle.

More volatility

The macro environment has changed in 2022 and three major trends undercut the near-term trends.

First, inflation increased as Covid increased the demand for stimulus money. Then. Lockdowns and Russia’s war on Ukraine have put more pressure on an already strained global supply chain.

Large write-ups can only be followed by large write-downs when the market is soft.

Second, since January 2022, global equity and VC markets have become more volatile, with investors regrouping to address an expensive capital environment where the path to profitability gains importance.

Finally, as higher interest rates try to suppress inflation, fears of recession increase and slow the pace of investment. All of this depresses the value of venture capital portfolios, and funds typically increase their investment reserves, leaving less money available for new investments.

Focusing on a narrow slice of the VC pie

These dynamics lead some to think that venture capital is collapsing or stagnating, or that later-stage growth equity is essentially dead. Headlines highlight that deal values ​​have fallen to a six-quarter low, or growth has slowed significantly for the quarter or year.

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