This graph from Silicon Alley Insider is a pretty startling picture – a slightly dubious measure, but a very strong message.
Charting the value of VC investments vs number of companies passing through the original and best business accelerator – Y Combinators – provides a graphic illustration of decline vs growth.
However, don’t forget that the Y Combinator alumni are also receiving early stage funding and seek to raise more money later. You could also argue that the informal Business Angel industry is not truly measured in this data either.
Hence, an even more intriging view would be to show the volume of companies recieving VC and Business Angel funding vs Y Combinator graduates.
I’d expect that this measure would show the two are climbing more evenly.
Hence, whilst the VC industry has less money, it is also making more investments (volume rather than value). So, the value of the average investment has fallen.
This may be for two reasons.
Firstly, the value of early stage digital or tech investments has fallen sharply. Steve Blank says $0.5m is now enough to start a US company, whereas, before $10m was needed.
Secondly, the ecosystem for investing in early stage companies and make more repeated investments is improving.
In other words, whilst the over all sum of VC money has declined – and that is a worry – this is also forcing structural changes to the venture capital industry – which is a good thing.
Is there a decline in the value of Business Angel funding? Anecdotal evidence would suggest that yes, there has been. However, as business angels link up more closing to business accelerators, then we can also expect the investment decisions to be more often although of a smaller amount.
Nevertheless, this is a clear sign of the business angel sector maturing and growing up.