The Rich Get Richer

The 2014 numbers for the VC category are out and it was a huge year, almost $50bn in total VC funding.

the rich get richer

But look at the numbers for “deals” vs the numbers for “dollars”.

In 2014, there were 4,356 deals vs 4,193 deals in 2013, an increase of 3.8% year over year.

In 2014, VCs invested $48.3bn, compared to $29.9bn in 2013, an increase of 61.5%.

Basically, the average deal size went from $7mm in 2013 to $11mm in 2014. But averages don’t really tell the whole story.

What is going on is that the late stage market is going crazy. There was a $100mm+ deal on average every month in 2014 and the late stage market made up 1/3 of all deals.

VCs are all about what is happening now and are not focusing as much on what will happen in five to ten years (the seed/early stage markets).

None of this should be news to those who are paying close attention. Round sizes have gone up and burn rates have gone up, but so much of this is limited to a hundred or a couple hundred companies. The rest of the market is more or less where it has been for years. The rich are getting richer. The middle class is stagnant. And the people who can’t raise a round still can’t. Only the top end of the market has really changed over the past five years.

Kind of like the entire economy, isn’t it?

#VC & Technology

Comments (Archived):

  1. Chimpwithcans

    yyyyyyyyyyyup! ๐Ÿ™‚

  2. bfeld

    This is a super important analysis that unfortunately no one is really doing. The segmentation of capital in the market is what is most interesting, not the “is this a bubble” or “look – more money into VC.”I’m disappointed by the PWC and others analysis of this. It’s all top level sound bites.Thanks for going a level down and framing what people should be analyzing, especially as comparisons to 1999 (or 2000) start permeating the blogs.

    1. William Mougayar

      Who’s to blame for this bubble priming, Brad?

      1. bfeld

        1. I have no idea if it is bubble priming.2. At some level, I couldn’t really care less who is doing what to whom for things I can’t control or impact.

        1. William Mougayar

          But that “whatever” is happening could eventually affect the early stages where you play, no?

          1. bfeld

            I play at all stages. We start at the early stage but we invest in the full lifecycle.At some level it has impact, but we play very long-term, so we are impacted by cycles, but they are exogenous to us. I can’t control them. I can fantasize about influencing them a little, but I don’t even think I can do that.So all I can do is focus on helping build durable companies that transcend cycles.

        2. David Semeria

          Nice to see an American get “couldn’t care less” right.

          1. bfeld

            One of my special skills.

          2. Mark Essel

            Being careless, I could have gotten that wrong.

          3. Chimpwithcans

            I wrote out a long post congratulating Brad on his grammar, but then I chickened out of posting as it was off point….but I’m glad It’s been recognised haha!

    2. Tom Labus

      is this flight from risk or the norm?

      1. Guest

    3. fredwilson

      I would like to go deeper to be honest. I did this in five mins before going to work out. Its kind of obvious what’s going on and what the issues are with that but we need more data to support the argument that the market is fucked up

      1. LE

        but we need more data to support the argument that the market is fucked upSerious question. What do you expect to happen if the argument is supported though? Do you think that in some way independently operating economic entities (investors and investees) are going to all the sudden change their behavior?You know if that is what you are trying to achieve your platform should be an op ed in the WSJ.

        1. Joe Cardillo

          Assuming the market is effed up, what do you think would change those behaviors? Seems like it has a lot to do with belief (which is when people roll out the “technology is changing the world” argument even when it’s not true)

          1. LE

            In an opinion piece? FUD which is fear uncertainty and doubt. Indirectly of course. (Directly will be seen as an obvious bias and wil be ignored.) Subtle slipping in of a message cloaked in other icing and cake. If enough of this type of writing gets out there then it’s possible (but in all honesty not likely) that it will become a way of thinking and then will be reality in people’s minds.

          2. Joe Cardillo

            Ah, interesting. Seems like an odd environment, economy improving but on some very weird underpinnings

      2. Nikhil Krishnan

        We did a late stage tech analysis a few weeks back. Probably one of the craziest parts is that the # of unique investors in $100M+ tech deals doubled between 2013-2014 (number of $100M+ deals was above 330)…

        1. PhilipSugar

          I don’t think that is crazy at all you have: innovators, imitators, and idiots.To me that is probably one of the best signs I’ve seen indicating where we are.

      3. Bill Tenneson

        My VC experience was 1986-2010. As Fred often points out, good companies always get funded, in good times or bad. The role of angels in getting an early stage company enough funds to make it across “the valley of death” is an important cog in the company creation wheel. PWC has never followed this market. And professional angels who pursue seed rounds as a business can be as prescient as the best of the institutional investor. I think great VC create a network of great angels-part of the infrastructure!!

    4. Ian Hathaway

      @bfeld:disqus Here’s a longer series… comparing w/ late-1990s

      1. bfeld

        This is really profound and helpful. My partners and I are already going back and forth in real time chat on labor vs. tech costs.bfeld: also – super useful graph from my friend ian that is worth looking at…Jason : interesting graph. Also, interesting is that we are seeing the costs of startups go up for the first time in our lifetimes, as labor costs surpass technology costs…bfeld: cost went way up in the bubble. i don’t know if the labor / tech lines crossed, but there was massive salary inflation until there wasn’t Jason : correct on salaries, but I’m pretty sure that the costs went down as tech cost savings were outpacing labor costs.

        1. pointsnfigures

          Real estate costs are also driving burn rates in California.

        2. LE

          Jason : interesting graph. Also, interesting is that we are seeing the costs of startups go up for the first time in our lifetimes, as labor costs surpass technology costs…There are many interrelating factors here. On the one hand certain types of labor costs are going up. But on the other hand young people are literally being farmed (and brainwashed) into working for startups and established players who already earn a decent salary hear the siren call of “lottery win” and get dragged out of their secure positions for lower paying positions in startups with equity. That didn’t really happen in the 90’s as I remember it. Or at least nowhere near as much (since we are talking trends..) Back then anyone with a secure job was certainly less likely (and in smaller numbers) to participate than they are today.

        3. PhilipSugar

          The fact that nearly everyone has a mobile networked supercomputer with GPS gives technology great leverage.And because of that, people and companies that can implement technology have huge leverage which causes the wide differences between top and bottom.An example in 1990 at Mitsubishi we looked at a Dallas company Pinpoint Technologies. They were going to build a system to better dispatch taxi’s and car services. They were going to use phones, with a phone bank, location technology from Qualcom, and radio technology from Fleet Call which became Nextel.Compare this to Uber.Now in no way do I think this justifies the bubble that is going on at the seed stage and late stage (yup, I am going to call it that) But it does explain the tinder that starts things, like always you have the innovators, imitators, and idiots.But there is huge leverage. Think of how many people used to be involved in a trip compared to how many today.

          1. LE

            Likewise using your 1990 example imagine the time it took to just communicate and discuss that idea back in the 90’s vs. today. Even if the implementations costs were the same today as they were back then (and they are not but that’s not my point) the speed to get to market and iterate ideas has become vastly different. Also to vet ideas. [1]And going back 10 years to the 80’s was a step back from the 90’s. (Pre fax machines and cell phones….fax machines changed the game in so many ways)[1] Any idea that I ever thought of in the 80’s to do took a vast amount of work to even pre-vet vs. today when the rough napkins answers are just a google search away.

    5. pointsnfigures

      It’s definitely not 1999 in VC. It’s 1999 in other asset classes. “Don’t Fight The Fed”. Would be a good t-shirt for the last couple of years.

      1. Girish Mehta

        This is one of the best analyses I have seen on this subject.…At the very end -“People in the VC industry talk about the โ€™60s, when institutional venture capital took off. They talk about the โ€™70s, when iconic companies like Apple and Genentech were founded and the microcomputer industry emerged. They talk about the โ€™90s and the Internet bubble.They donโ€™t talk about the โ€™80s; the โ€™80s are the missing piece of the puzzle. You can have lots of plausible theories about what venture capitalists as a class can do to get good returns, until you take the 1980s into account. Then you can only have one: the only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that donโ€™t yet exist. Everything else is noise.”

    6. Frank Traylor

      Brad, you’d be a good one to answer this. Although VC deals are getting larger is seed dried up? How much of the vacuum is taken by accelerators/ecosystems providing individuals better access to deals. It’s certainly not easy to get into an accelerator but they provide visibility for young companies to access capital.

    7. Dasher

      The more interesting question is why is this (increased round sizes) happening.

  3. awaldstein

    ‘rich are getting richer’Been true for ever–no?Difference is, at least from my roots, was that the middle, the middle class was both obtainable and came with a sense of security. Seems less true today.Commenting not kvetching here as I look back at my parents and forward to this class of workers.

    1. JimHirshfield

      Yes in re security. There used to be company managed pensions. Those were dumped for employee managed 401k’s. And now, in startup land we have only ISO’s.From secure to outright speculative while at the same time selling the American dream.

      1. awaldstein

        Yup.Monitoring finances for a food company has shown a whole new light on a class of workers, talented and just struggling with very little way out or up.

      2. Matt Zagaja

        At the end of the day I don’t think most people are better or worse off receiving a pension than a 401k. The difference is they couldn’t touch/control the pension and it’s return was guaranteed. The literature I’ve read suggests you should be able to attain similar results by simply putting your money into a Vanguard index fund. Sure it is possible that America can collapse and your fund with it, but if a systemic shock like that occurs is the money going to really be there if it’s all invested in a large pool?Though this view is more of a function of my skepticism of the skill of professional money managers than anything.

        1. JimHirshfield

          Well ask yourself this: who’s better qualified to manager funds, a professional pension fund manager or joe employee?

          1. Matt Zagaja

            Based on everything I’ve read I sincerely believe you are better off being Joe Employee. The literature I’ve read and conversations I’ve had with people in the investing world suggests that people who professionally manage money and achieve good results mostly are not doing so as a function of skill, but rather as a function of luck:Studying the returns of dozens of mutual funds in a ten-year period from 1950 to 1960, Fama found that funds that performed well in one year were no more likely to beat their competition the next time around. 24 Although he had been unable to beat the market, nobody else really could either: A superior analyst is one whose gains . . . are consistently greater than those of the market. Consistency is the crucial word here, since for any given short period of time . . . some people will do much better than the market and some will do much worse. Unfortunately, by this criterion , this author does not qualify as a superior analyst. There is some consolation, however . . . . [O] ther more market-tested institutions do not seem to qualify either. 25Silver, Nate (2012-09-27). The Signal and the Noise: Why So Many Predictions Fail-but Some Don’t (Kindle Locations 5713-5721). Penguin Group. Kindle Edition.Other literature has noted that for the fortunate few who are able to consistently beat the market with skill, they end up gobbling up nearly the entire surplus, or sometimes more than it in fees (see… ).My view is also echoed by advice from Warren Buffet:”Put 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) <http:“” story=”” 12462505=”” 1=”” warren-buffett-pitches-vanguard-index-funds-for-mom-and-pop-investors.html=””>I believe the trust’s long-term results from this policy will be superior to those attained by most investors-whether pension funds, institutions or individuals-who employ high-fee managers.”

          2. JimHirshfield

            Skill or no skill, I think it’s about attention. Most professional investment managers pay attention to investments. Joe Employee doesn’t… He’s busy with his day job and living life, forgetting about the fund selection(s) he made 10 years ago. If Joe succeeds, then it’s by chance, which is what you implied, I think.

          3. Matt Zagaja

            I guess that is where we disagree. Fama (and Silver’s) point is that there is no value to paying attention for most people. In a world where most investment managers are not skilled the only way to beat the market is to have skill at picking skilled investment managers, and then hope that having found that manager they share some of the surplus with you. Is it really easier to pick a skilled investment manager than to pick a stock?

          4. LE

            Agree. The thing that makes investing so difficult (no matter who you are) is that there are a vast number of forces not under your control and information that you don’t have access to. As a result all you can really do is take a wild guess.

          5. JimHirshfield


          6. Eric Satz

            i think this is true for both the investment manager and joe employee. both can achieve only what the market achieves.

          7. Matt Zagaja

            Or thinking about this more maybe we agree in a way after all. If someone is going to be successful, they’re certainly going to have to do it by paying attention. They have to notice something someone else doesn’t, or have insider information, or believe something others do not. I don’t really see most Joe Employees as being better than professional money, but I also think a lot of professional money lacks the skill to see these things. At the end of the day I’m sticking with Buffett’s advice and just buying shares of America through index funds.

          8. JimHirshfield

            I agree with you more than you agree with yourself. ๐Ÿ˜‰

        2. Eric Satz

          pensions are only guaranteed on paper. would be interesting to see stats on # of cos today with under-funded v fully-funded pension liabilities.

    2. William Mougayar

      The “muddled middle” is always tough. Same with small things & big goals. It’s easy to find a bottle of wine under $15 (you get what you pay for), and easier to buy an expensive one, say at $70+. But try to find a great bottle at the $20-$45 midrange and it gets a lot more difficult.

      1. awaldstein

        YupAgree completely but your wine metaphor is off my friend ;)The sweet spot for interesting and delicious wine is $30-45 and very rarely except for bubbles do you need to hit the top of that. Can’t remember the last time I bought a bottle at a shop (outside of Champagne) for over $60.

        1. William Mougayar

          But there are still lots of crappy bottles at the $25-$45 that flood the market (at least in Canada). People like you and I know what we’re buying. But the average consumer gets duped.

          1. awaldstein

            There is crap at any price.I know the wine market a litttle bit, i don’t know in general what the average consumer means.If you are referring the fattest middle of the market where wine is sold like any branded boy bandish consumer product, I guess.If you are referring to the top 15% even 20% of the market where interest, information and assisted buying is the norm, I don’t agree.There is no relation between the person buying a $25 bottle unassisted at some big box store and the person buying a $25 bottle at any one of hundreds of smallish (less than 10K SKU) shops talking through the purchase.

          2. William Mougayar

            I agree on your last paragraph & was referring to the fattest middle where I buy. But it seems the above $20 range is a lot smaller than I thought (at least in the US). See chart of wine sales share by bottle price range (source: Statista):

          3. awaldstein

            Good data.You need to be careful about these slices though.It’s like saying that Whole Foods is only a small portion of the grocery business–which it is–but that doesn’t mean it isn’t highly influential to the entire segment.The mass market is a messy highly fragmented entity almost completely defined by not only income but how they shop.

          4. Eric Satz

            subtle but very interesting point being made here as wine relates to investment opportunity. in both markets, people who don’t really know what they are buying use either price and/or the opinion of their wine seller (i.e. existing investors) as a proxy for quality and expected ROI. (there is also the cool looking label method but we can leave that for another discussion.) in the end, the price of a bottle, like the price of an equity deal, is dependent upon many things that have nothing to do with what’s inside the glass.anecdotally, i went to dinner saturday night and we asked our server about the malbecs (because my son was in mendoza, argentina last summer) and he directed us to the least expensive of the options and said it was by far the best. not only was it delicious but we could almost get 2 for the price of the others.

          5. awaldstein

            A topic I’ve thought and blogged on for years.It is more interesting as the web and communities has enabled an economic support system that in some ways acts like crowd sourcing.There are a number of West Coast natural producers–Ambythe in Pasa Robles and Bow & Arrow in Portland who are completely outfront with what they are doing. By definition tiny and make great wine. They are not economic really but have created very strong communities that buy their wine (tiny quantities) at prices that allow the winemakers to live–and exist–and to not change how they want to ply their trade.Very cool stuff.

          6. William Mougayar

            Yes! I knew I was on to something, with the wine analogy ;)It does boil down toto the price/quality ratio at the end, whether it’s wine or a startup company.

    3. Richard

      Never liked the label Middle class, middle income seems more appropriate

      1. awaldstein

        Good point rich.I didn’t know anyone growing up with generational wealth and honestly coming from humble roots being middle class was an aspiration and something of pride for a generation,Different times and a different perspective.

  4. JimHirshfield

    How much of this investment/value would have come post IPO in earlier times? IPOs are delayed more than in the past, as you know.

    1. fredwilson

      Great point. Might be that the VC market is taking share from IPOs. But that’s messed up because it means only fat cats like me can make money in the hot tech companies

      1. JimHirshfield

        For sure. We need more accessible IPOs. Have we regulated this thing into scarcity?

        1. Ric Fulop

          Or maybe we need a new way for the public to participate

          1. JimHirshfield

            Yes. Crowd source funding seems to be coming to the unaccredited masses, albeit too slowly IMHO.

      2. Ric Fulop

        Unfortunately the cost of taking a company public is way higher today than it used to be. Many of today’s unicorns would have been public cos in the 80s and 90s (When MSFT went public it has a sub $400M market cap and the masses benefited from the ride up). Any ideas on how to bring normalcy back?

      3. JamesHRH

        This is an example of over regulation.

      4. LE

        because it means only fat cats like me can make moneyIf you were a fat cat you’d have a private jet as well as a town car driving you around Manhattan and Gotham Gal wouldn’t be complaining about the price of show tickets (or was that you I don’t remember?)On a serious note there was an article talking about exactly the point of “VC market is taking share from IPO’s”. Recent one about older line banking firms closing offices on the west coast because so few ipos compared to the past. (Can’t find the link or I would post..)

      5. Casey Stern

        Yes Fred, we need disruption here, so the rest of us non-accredited investors can invest in the pre-IPO “hot tech companies” with the “fat cats” like you :-). How do we solve this, and still protect non-accredited investors? Cap the investment size for non-accredited investors? Maybe you will write a blog post on this some day…

    2. Girish Mehta

      There was a stunning data point in this piece –……211 companies raised $40M+ in growth rounds during 2014 alone, while just about 240 VC backed IT companies went public in the last ten years.

      1. pointsnfigures

        Andreessen advises against going public too soon for a lot of excellent reasons.

        1. Girish Mehta

          Yes, have seen that…others have called it out as well.The good news (from the company’s standpoint) is that a private company does not get re-valued everyday. A public company gets re-priced every day. (Just keeping to the company’s perspective here).The bad news is that a IPO might well then become a down round (to avoid which, a company might go for another private round….).What the market is betting on here is a spectacularly good exit environment for these late stage high valuation rounds.But – agree there are good reasons to not go public, or for a public company to go private. Question remains though about the risk/valuation of late stage private rounds. Thanks.

  5. Tom Labus

    Lot of piling on to lower risk?Who is doing he best long term risk?

    1. JimHirshfield

      Who? Entrepreneurs.

      1. Tom Labus

        No, funds

    2. fredwilson

      A16Z is doing some out there stuff

  6. JaredMermey

    Why are/should the $100M+ deals that come from opportunity funds still be classified as VC?

    1. JimHirshfield

      Good question. I thought these were private equity.

      1. Jordan Thaeler

        99.99% of VC dollars are just growth equity placements. They are NOT investing in “startups” but rather companies that they think have high growth potential.

      2. pointsnfigures

        Private Equity levers up the buggy whip factories. They aren’t doing that with later stage VC.

  7. William Mougayar

    “Seed Stage investments fell 29 percent in terms of dollars and 18 percent in deals with $719 million going into 192 companies in 2014, the lowest number of Seed deals since 2002. Seed Stage companies attracted 1 percent of dollars and 4 percent of deals in 2014 compared to 3 percent of dollars and 6 percent of deals in 2013.”1/ Is it possible that it’s because many more Seed deals aren’t announced, therefore go undetected & unaccounted for a while?2/ If that’s not the case, what should be a more reasonable share of deals & $ for the Seed stage?

    1. Jonathan Nation

      3/ Are there additional sources of money that are being used for Seed stage (crowdfunding / customerfunding / loans) ?4/ Has the burn rate for Seed Stage time frame going down (cheaper to build, cheaper to host, more people willing to work for sell salary and more equity) ?5/ Instead of going through the Seed/VC stages, could it be large companies are acquiring the startup during the traditional Seed funding stage?

    2. JamesHRH

      How can this be? I read somewhere else that 400 Seed Stage VC firms were formed in 2014 (will go look for citation).

    3. PhilipSugar

      I have never been convinced PWC sees the true seed stage deals. They see the institutional deals.

      1. William Mougayar

        Seed deals stats are where there are the most holes. I can guarantee you that. No one can detect what hasn’t been announced or publicized…unless you’re Wikileaks of course; or maybe they branch into Seedleaks.

        1. MattGreenfield

          Even in my own modest-sized sector, education technology, the specialized accelerators are seeing over 200 applicants, most of whom have raised at least a little money from friends and family. So there are clearly a lot more than 200 seed-stage tech businesses that have raised at least a little money.

          1. William Mougayar

            Yup, that seed stage segment is definitely missing a large chunk of reality. Off the top of my head, I would double it, if you assume that 1/2 these deals aren’t announced immediately for a variety of reasons, or that they are small enough that they fly under the radar of accurate detection.

      2. fredwilson


    4. fredwilson

      i think this is VCs doing seed, not the entire seed market. but i am not sure about that

  8. Jonathan Nation

    Basically, everyone keeps doing what they are doing & getting the same results?Is that really shocking?At the same time, is it really valid to think of rich, middle class, and poor as static groups?If I as an Entrepreneur make no money this year, I am classified as poor, yet next year I could have generated enough revenue to be considered rich, and in a few years take a year off and be considered poor again.

  9. Dan Epstein

    How do you see this playing out?Do you have 2 or 3 most likely scenarios you can share?Would love to see that as a post if not here.

  10. andrewparker

    Great read on the situation, completely agree.As an early stage investor (Seed and Series A pretty much exclusively), I view this environment optimistically. It means that at the earliest stages, things have changed a little, but not much. Implicit in early stage risk, some of those investments will not achieve product market fit and sadly won’t work. But for the ones that do work, it’s very unlikely currently that they will fail due to lack of access to capital. Minimally dilutive capital will help these companies scar through their pimplely, awkward teenage years, and then (hopefully) the promiseland of a long-term, sustainable, large, independent, public company awaits on the other side.I can tell from your tone in the comments you think this massive inflow of capita into just a hundred or so companies is fucked up. But there is a glass half full view here too.

    1. andrewparker

      *Scar = scale. Funny typo.

    2. William Mougayar

      Nonetheless, I thought Fred was wishing there was more investment going into Seed, no?

      1. pointsnfigures

        It takes a different perspective, and a different kind of person to be a seed investor. Not everyone is cut out for it. Certainly not Fidelity.

      2. LE

        Unfortunately people in business don’t do things because others (their competitors in particular) wish for it.

      3. fredwilson

        more investment into seed and series A. series A is where the real gap is

        1. Pranay Srinivasan

          “Series A is the line the VCs draw to separate businesses from projects” – I heard that somewhere

    3. Joe Cardillo

      Pardon if this is a dumb Q from first time founder, but doesn’t the hard focus on these late stage successes that are enormous tend to put pressure on early stage startups? As in, doesn’t it train VCs and founders to ask demand unrealistic answers about growth and scale before they can be answered? Not being rhetorical here, am curious to hear any thoughts

    4. fredwilson

      it’s messed up from a herd mentality perspective. but you are right that it is good for those willing to take seed and series A risk

  11. pointsnfigures

    YUP. Noticed this for a long time. Lots of factors. New entrants into the later stage market; FOMO from VCs that need to be in the name deal. That being said, while some valuations are inflated I don’t think it’s a bubble industry wide. I do think we are in a place where more and more people are able to apply technological solutions in crazy ways to existing industries and create really big companies. Call it the beginning of the New Renaissance.

    1. William Mougayar

      I like your optimism, and I agree with it. The subtitle for this post could be:”Entrepreneurs getting smarter.”

    2. Frank Traylor

      I agree that “more and more people are able to apply technological solutions in crazy ways to existing industries” Wouldn’t this provide fertile ground for seed investments in relatively low risk startups with good upside?

  12. Greg Kieser

    “Kind of like the entire economy, isnโ€™t it?”Seems like it. I wonder if fed policy drives this phenomenon in the same way it drives up asset prices and inequality.

    1. pointsnfigures

      It changes the risk/reward calculation. 0% interest rates and continual QE will cause people to feel “richer”. When the cost of money is 0%, imbalances occur. To be honest, I think Private Equity is dead, and so is Real Estate investing in this environment. The only place to get real return and growth is seed stage investing.

      1. awaldstein

        Private equity is dead?

        1. LE

          At one point, Paul was dead as well.Anyway that is a theme that has been talked about.http://www.businessinsider….What I find interesting is how ideas spread like this. Doesn’t make them wrong or right but look at what just happened. Someone reads something one time or a few and then it begins to spread.

      2. leapy

        More Private equity than ever. Desperate for things giving *any* return. Loads of new family offices from far east.

        1. pointsnfigures

          Private equity is a crappy place to put money. What happens when interest rates go up? Their margins get squeezed. At the same time, with stock market on the high do you want to pay the “high tick” for a company? Banks aren’t lending despite what they say, so it’s harder to lever up the company. Private equity can’t afford, nor has the risk appetite, to buy a company like Uber or Snapchat. Additionally, there are so many PE funds chasing too few good deals that it’s driving up prices (like late stage VC). Dead as the parrot in Monty Python. Will be a lot of blood in the street in these fund vintages. Send me some far east offices. I’ll show them what I am seeing.

          1. leapy

            *Absolutely agree.* Sorry if looked otherwise.From a returns perspective PE is on a burning boat. Every month there are one or two new ~$0.5Bn offices coming on the market with the money burning a hole in their pocket. They don’t know where else to go.

          2. pointsnfigures

            They talk to their friends. It’s an echo chamber. They need to talk to new people. would like to discuss further, what’s your email?

          3. Cam MacRae

            ‘E’s not dead, ‘e’s restin’!

      3. LE

        and so is Real Estate investing in this environment.In theory though anything dead then becomes an opportunity per and related to your other comment which was roughly “where money will go next”. If money is not in something currently, then in theory prices decline and it is only an amount of time until they come back.

    2. DJL

      The Fed is directly responsible for the BIG money held by the banks and NOT going back to the economy. The QE money gets printed – and the banks buy and hold. They get 3% return with no risk. The program did great for propping up the balance sheets of banks (part of the desired result.) It did nothing for moving money into the economy. The big banks are all “friends of the Fed.” So yes, the rich getting richer as a direct result of policy.

  13. Dara Albright

    Exactly like the overall economy and the very reason we need to democratize finance. With the vast majority of Americans legally prohibited from partaking in the upside of some of the nationโ€™s most exciting privately-held business, the country continues to experience an ever-widening wealth gap. There are only two possible solutions. Either public markets need to start supporting small cap growth stocks again, or laws need to be enacted that would grant unaccredited investors access to privately-held companies. You can read more at

  14. leapy

    Hot money looking for “dead cert” x%+ returns where x > fed rate + 20. Not interested in 10000% risk profile. No expertise.

    1. anon

      yea who would want that…

      1. pointsnfigures

        One of the tricks in trading is to figure out where the hot money will go next and position yourself to take advantage of it.

        1. LE

          Same with certain types of real estate or land purchases.

  15. Dan Ramsden

    “Kind of like the entire economy, isn’t it?” Yes indeed. On one hand there is the fear of missing out, on the other there is the fear of not truly understanding what it means.The asset inflation that many have pointed to mirrors these two fears: Optionality in stocks, and safety in bonds. The two are inter-related, consistent, and the barbell is not entirely a result of monetary policy as has been regularly suggested. Some of it is actually quite fundamental.If interested, here’s a more elaborate note about this idea as exemplified by Netflix (and the yield curve):

  16. Ric Fulop

    One issue I have with the current setup is that we are removing the wisdom of the masses and the crowd from selection. We are leaving all the late stage picking to a concentrated group that focuses on momentum. That only exacerbates the problem.

    1. fredwilson

      yuppppp. why not fix that problem Ric?

  17. Matt Zagaja

    At no other time in our history has strong talent been so plentiful, and the capital to utilize it so scarce. From venture firms to law firms executives find it easy to measure kinetic energy, but potential energy remains out of their reach. In my mind the people bolting their cash onto fourth rounds for proven companies are not as impressive nor important as the ones doing the work and taking the leap of faith in the first round.

    1. Rob Underwood

      Interesting take and a bit contrarian to what appears to be the common narrative that we’re awash in capital (cash) but there is a dearth of both truly good ideas and talent. On talent, a lot discussion on the skills gap and hard working folks w/o the necessary “21st century” skills.

  18. aminTorres

    “In 2014, VCs invested $48.3bn, compared to $29.9bn in 2014, an increase of 61.5%” 2014 twice, I think you mean compared to … in 2013

    1. fredwilson

      thanks. i fixed it

  19. Marcus Detry

    Fred/Board – Why has Series A money been so difficult to find? (Not just speaking from personal experience).

    1. pointsnfigures

      One reason is too many opportunities. Lots of seed companies can bootstrap and startup. They don’t need a lot of capital. To grow, they need capital. With more companies starting up, VCs have access to deal flow but are constrained by the amount of checks they can write. That’s why Fred’s post on having an investment thesis helps funds.

  20. DJL

    As a first-time fundraiser, this is painfully obvious. VCs will write a check to a founder who has made them money before on nothing more than a slide deck. But the first timers have to prove their business to the point where you almost don’t need the money. It does make my head spin when people say there is too much easy money out there. Maybe they aren’t looking far and deep enough. I am not sure that platforms such as have actually changed the “club” mentality at all. Just made it more obvious.

    1. awaldstein

      Raising capital is just really hard.Anyone who tells you different is either one of the chosen few or hasn’t done it in today’s climate.

      1. DJL

        That is much easier to swallow than the notion that there is “too much easy money.” I think our eyes are open to the reality and we are ready to slog though the mud.

        1. awaldstein

          The only money that matters is that which you are able to get at a fair price with great investors.And it is a slog and often illogical.It does happen though all the time.Just got a note from a buddy I advise and he just closed a good sized note yesterday. Was a great email to wake up to.

      2. PhilipSugar

        This is so correct. Its always been hard.

    2. Joe Cardillo

      I hear you because, well, my co-founders and I are in the same position. One alternate way of looking at it is, not getting the easy check means you have to dig deep / build a product that matters to people. Not dismissing your point at all just worth noting that there are advantages too.Also, we’re starting to listen & have conversations way before asking for the money and with a much deeper, longer list weighted towards entrepreneurs turned VC who have been there and get it. Of course if someone throws money at us and comes correct / doesn’t have an awful reputation we’ll take ’em, but if you do the hard work on the front end I believe you’ll get investors who add a ton of value.

      1. DJL

        Thanks, Joe. My advisors are also pointing me in the direction of partnerships. If we can latch on to a great channel parter with a huge reach, maybe we don’t even need the money. (And these are people I have made money for in the past!)Ditto on everything you said!

        1. Joe Cardillo

          Yep totally agree that is a good approach. Our advisers & friends who’ve raised have all said that the sooner you start measuring by metric that leads to customers paying, the better off you are. Quality of information changes massively at that point.

    3. baba12

      If it has taken u this long to realize that then that is sad. Don’t ever believe that VC’s take risks, if they did then they would have been the first to bet on creating the Internets of the world.It is a cabal/club & a few manage to get through to join that cabal. In the last 10 years basic fundamental research is still done heavily through the research dollars provided for by tax payers. As Mr.Wilson has stated clearly USV invests in platforms that create the network effect. They nor any other VC out there isn’t going to invest in anything that is unproven nor should they. But what they shouldn’t be doing is talking about the risks they take. What you are stating is simply that and frustrates you and many others to come to realize that about VC’s in general.

  21. EJD

    What’s perhaps not discussed enough is how much of this phenomenon is driven by Limited Partners. Many LPs need to write larger checks than early stage funds can absorb. Combined with a buoyant exit/IPO market for venture-backed companies and you have a proliferation of large, late stage funds, which in turn drives larger and larger round sizes. Of course this should be the first place to suffer if/when the music stops.

  22. Tom Labus

    I like the Eagles risk in signing Time Tebow!!!

  23. BillMcNeely

    saw this slide from Goldman Sachs this weekend.

  24. Dave Pinsen

    The rich are getting richer. The middle class is stagnant.Voters used to vote for Democrats in the hope that they would boost the middle class. Instead, now they get a high-low coalition against the middle. Record late-stage VC deals and record food stamps. Nasdaq near its 2000 highs, but a smaller percentage of Americans with jobs now.

    1. SubstrateUndertow

      Are Is that to suggest the Democrats are the driving force behind the “high-low coalition against the middle” or that larger external force constrain both political parties options regardless of which party is presently in control?

      1. Dave Pinsen

        Maybe a little from column A, a little from column B.

  25. howardlindzon

    I think this post will get misread and misinterpreted, but let me add to it.I started angel investing in 2006. I stepped it up each and every year and have stayed an angel investor. All the people I was angel investing with have gone on to raise huge funds and I keep doing what I do at a small size so it feels like the market has dragged the best angels to big funds so its not so much the rich getting richer its also the crop of angels from 2006-2010 raising big funds.

    1. William Mougayar

      How have you managed the follow-on potentials for your investments that were doing really well and breaking away?

      1. howardlindzon

        i remain a thousandaiire…does that answer your question ๐Ÿ™‚

        1. joeagliozzo

          curious – do you get approached by funds that want to buy your pro rata rights? I keep reading about these guys and it seems to fit the trend of fewer, larger and more lucrative opportunities.

        2. fredwilson


    2. egalston

      100% this. i dont have great insights into cali/NYC but in Chicago this upstream movement has basically wiped out the active super seed angel market & it scares me for the next 2-3 years of my Midwest ecosystem.

      1. Joe Cardillo

        From your perspective does this seem to be reducing the level of risk that angels / microseed super angel etc are willing to take early stage? Or just a reduction in the #s that play in that area overall…

        1. egalston

          i think the whole thing is really out of whack right now. no founder wants to give up 20% of their company for 200k so everyone is trying to raise on a $4m note cap. When seed institutions price a $1m seed round, it often comes in at $4mpre. When this happens the early angels who took insane risk get a +25% reward. They see that and recognize how much money they’ll lose long-term and move upstream to co-invest on the seed round. That leaves no one in play earlier unless founders are willing to accept lower valuations or angels see greater appreciation in the next round. Its in a bad place right now, imo.

          1. Joe Cardillo

            Interesting, that first part was something I’ve worried about…useful to hear 2nd part

      2. CJ

        Is there anyone blogging/talking about this scene in Chicago?

        1. egalston

          I am…here’s a piece I wrote addressing the topic (… also Jeff Carter @pointsnfigures:disqus is writing a bit on it as well

          1. CJ

            Awesome. Checking this out now.

    3. Jerry Neumann

      Not *all* of us ๐Ÿ™‚

    4. fredwilson


  26. Robert

    Great interpretation of the data, that I can only back up with (non hard data) evidence from stories in Berlin. A chamber of commerce representative from the city of Berlin recently lamented how little startups there were that did well apart from Rocket Internet. This was a shock to me and contrary to the hype that is created around start ups all over the place. Thanks to the data in this post it’s clearer to me that this is also due to the huge valuations of later stage companies, less early stage.

  27. Semil Shah

    The crazy thing is, in the early stages, the behavior is somewhat similar today.

  28. george

    Mercury rising! Interesting YoY comps in quarters Two and Four. Is there some correlation going on in terms of explaining why bigger deal values occur in those quarters? Looks like the half year/end of year quarters pull more value.

  29. Richard Kain

    Momentum is real in investing, in individual entities as well as asset classes. Thus they overshoot their value and sometimes by a lot in either direction. Erroneous prices inherently have a self-correcting mechanism. Seed stage momentum was broken two years ago when every team of two and a dream pushed for and sometimes got $12m premoney (cause, “hey, Airbnb was at $4 pre, now they’re worth a billion”) and then collectively took a bloodbath: it would have been far greater to have invested then in ultra-large cap Facebook which was under $30 for a while (“they screwed up mobile!”) than some mobile ad network. Now its over $80, with a quarterly miss or two investors will return to preferring mobile ad startups…and they’ll be at $3m pre and there will be a late stage crunch since the fed raises rates and there are fewer IPOs, etc…the circle of financing life goes on.

  30. Douglas Crets

    This writeup of a recent Stanley Druckenmiller speech stands out to me, and does a good job of explaining the problem: http://www.businessinsider….Do you see late stage market being a place where people bored with zero return, no risk investing are going because they think there is a 15% or more return buried in one or two of those hundred or so companies? I do, but I’m not an expert. My hunch is that enough riding of the risk may actually make these companies work, but that there is not much appetite outside of funding for some of these companies to exist. ETSY being an exception, of course. I think that’s an important company.

  31. matthewwoo

    So when reading Capital by Thomas Piketty, the thesis was that as long as rate of capital exceed the rate of growth, the forces of convergence will continue to drive income inequality.Now I know this isn’t directly translatable, but I’m wondering if there is also a simple formula that is driving this convergence among raising rounds in VC.Going to think about it more and post future thoughts, but just a question to put out there for now.

  32. VarunChoraria

    In a phrase my dear folks, “survival of the fittest”.

  33. LE

    Yiddish expression for same concept which roughly translates to “if you are going to eat like a pig, let it drip from your beard”.