When people ask me about the likely development of the venture capital industry I always answer that it is governed by two somewhat independent cycles.
The first is the macro-economic cycle. When the overall economy is performing poorly it is harder for startups to grow their businesses and create value and those that make it as far as exit find their companies attract lower valuations both at IPO and in M&A. These factors depress returns across the industry which reduces the attractiveness of venture capital as an asset class and hence the size of the venture industry as measured by investment into venture capital funds is driven in part by the macroeconomic cycle.
In my 11 years in this industry venture industry suffered significantly in the downturns from 2001-04 and 2008-2009.
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Author: Nic Brisbourne
