Two graphs caught my attention while reading “Valuing Early Stage And Venture-Backed Companies.” These graphs relate to the amount of money invested by venture capitalists by year and the amount of venture capital money available by year. I have reproduced both graphs here.
The first illustrates venture capital commitments by year which is shown in terms of millions of dollars.
The preceding graph show a relatively flat investment cycle up until the spike which occurred during the dot-com bubble. This translates to relatively small amount of capital being available, proceeded by a large run-up in capital (and valuations) and a subsequent sharp drop-off.
The second graph shows the amount of venture capital available for investment in terms of billions of dollars.
There are two things worth noting here. First, just prior to the dot-com bubble and up until the time this book was published, the amount of available capital is relatively flat. Second, there is much more money available throughout the evaluation period both pre and post dot-com.
Ultimately I view this as a very positive sign for businesses. There is much capital available, VCs are just being very selective about where to put their money. In my opinion the best thing to do as a company is to continue to build value and build the business, regardless of investment capital. As more value is being built investors will take notice over time and make the investment when there is alignment between company value and perceived investor value.
The more value that the founders build into the company, the more that others, including investors will take notice. Although the amount of money invested over time fluctuates, the amount available appears relatively stable. Those businesses that continue to build value irrespective of funding, will be primed for investment opportunities as they present themselves.
The following is a resource for venture capital trends:
1. Neil J. Beaton. Valuing Early Stage And Venture-Backed Companies:
Image Credit: Enterprise Features