Venture investment was down in Q4 but may have further to go

By January 15, 2016Venture Capital

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Yesterday I wrote that there are clouds on the horizon in the world of startup finance, but it was unclear whether valuations will continue to drop, level off, or even go back up. Today the new data from PWC shows that investment dropped sharply in Q4 but is still at historically high levels. As you can see from the chart above even though the $11.3bn invested in Q4 was 32% less than the $16.6bn invested in Q3 it was still higher than all bar five quarters since the 2000 bubble burst.

Moreover, the shape of the decline in venture investment after the NASDAQ peaked in Q1 2000 suggests that the current decline will go on for more than the 1-2 quarters we’ve seen so far. As I said yesterday, private markets react slowly.

However, on Mattermark this morning we had a post from Calacanis arguing that market deflation is almost complete and a post from Tunguz which concluded by saying he thought it likely that VCs will continue to pay high valuations for premium SaaS startups. For me the jury is still out on which way the markets will move next, although I do think that a further downwards move is likely at some point in the next year or so.