Venture Capital Slowdown | Seeking Alpha

One of the areas that I have participated in directly over the past thirty years or so has been in the area of startups and early-stage companies.

I have seen this area as vital to the growth and advancement of American industry, and I have also seen this area as a vital place for the energy and intelligence of younger people to bring their talents and persistence to the economy to keep things moving ahead.

Over the past two to three years, I have never seen so much activity in this space.

Driving this activity has been a “glut” of money.

Never before have I seen so much money available to these young entrepreneurs.

Never before have I seen so much activity in the colleges and universities of the country in promoting the development and execution of new enterprises, started, mostly, by the younger generation.

Venture capital and Angel finance exploded during this time.

Thank you Federal Reserve System.

Now the pullback.

Slowdown

The latest data released concerning this space indicates that venture capitalists have reduced their investment in early-stage deals by 22 percent, year-over-year:

“That marked the biggest quarterly year-over-year decline in early-stage funding since at least 2010, with the exception of a drop in the second quarter of 2020, when investors pulled back briefly amid the onset of the global pandemic.”

So writes Berber Jin in the Wall Street Journal.

“The retreat shows investors’ increasing caution toward riskier investments such as nascent companies, a market change in sentiment from recent years, when competition among venture firms drove them to invest even earlier in a startup’s life cycle… It follows a similar pullback in funding for later-stage startups, which are closer to going public and thus more affected by stock market changes.”

And, the back-off seems pervasive.

In the seed-stage section of deals, the U.S. volume of business has dropped by 11 percent, year-over-year, in the second quarter.

Jeff Morris Jr., who manages an early-stage fund, is quoted by Mr. Jin as saying,

“The seed and Series A funding environment is the toughest I’ve ever seen in my career managing a fund.”

As might be expected, crypto startups have suffered more than others because of the overall movement away from crypto-assets.

Fed Pullback

The Fed threw lots and lots of money at the U.S. economy to fight off the effects of the Covid-19 pandemic and the economic recession that accompanied it.

Now, we are on the other side of the hill.

The world became very much disjointed by the first move.

Now, the Fed is working to help the economy return to a more connected world, one that can progress in a more normal fashion.

But, the transition from one world to the other is going to be very painful and cause many further disruptions.

However, the adjustment back cannot be avoided.

And, so, the buildup of cash worked its way through the debt markets, through the economy, and through the world.

Payoff time is here. We are working our way back through the debt markets, through the economy, and through to the world.

In terms of the debt markets, I have written quite a few posts about how the reversal is working its way through various segments of the debt market that got built up during the Fed’s expansion.

It is important to understand these retractions because they, in their way, depict what the policymakers have to deal with.

The U.S. economy, and the world, are in a period of contraction.

The U.S. economy, and the world, are in a period of contraction while, at the same time they are in a period of transition into the modern information age.

Slowdown Of Entrepreneurial Effort

It makes me sad, however, to see the slowdown in the world of venture capital and angel finance.

It is exciting, as well as productive, to see all the energy and intelligence work in this space.

It will be disappointing to see a greater downturn in money going into this space.

But, as the Federal Reserve created bubbles elsewhere in the economy, it also created bubbles in the world of entrepreneurship.

The pain spreads.