The decline in venture is bottoming out

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Reading the tea leaves to predict where the venture capital market is heading seems to be everyone’s favourite hobby at the moment, and I’m no exception. Last week we had data from tech.eu which showed that venture investment in Europe is roughly flat quarter on quarter (excluding Spotify’s $1bn raise). Now we have Mattermark and PWC data on Q1 in the US and, surprisingly, the picture there is similar. As you can see from the chart above there was a precipitous decline from Q3 to Q4, but the rot stopped in Q1. Moreover, we are still at a high level of investment when compared with any period except the last couple of years and the 1998-2000 bubble.

It will be very interesting to see where this goes next quarter. I’ve been saying that I think the underlying growth in venture and startup activity here in Europe will balance out the correction and my best guess is that investment levels for the next few quarters will be roughly flat on where they are today at €3.5-4bn, but that I expected the US to keep falling. Now I’m wondering if I should revise my expectations upwards.

The other interesting thing to emerge is that investment in the Bay Area is falling faster than everywhere else – Q1 2016 is 20% down on Q1 2015. The capital overhang is greater in the Valley than anywhere else whilst at the same time it’s getting easier to start and finance your business in multiple other places (including London) so I would expect this trend to continue. That would be good news for startup ecosystems all around the world.