VC market is failing startups, says report:
The work of the group confirmed that there is a fundamental market failure in the provision of early-stage financing in both the US and the EU. Venture capital funds are concentrating on larger and larger deals, leaving the small and risky early-stage deals aside. This is due to the more attractive returns and lower risks available in later-stage investments to more established firms, and in buyouts of larger companies. This can become a self-reinforcing cycle: because few venture capital funds are active in the seed and early stage area, they don’t have any longer the necessary knowledge to operate there. The few remaining seed funds and the business angel investors cannot by themselves cover the demand for equity investments.
Ignoring the poor word usage towards the end (“they don’t have any longer” — they no longer have?), this is reminscient to the Keynesian view on savings, his Paradox of Thrift (i.e. if you save, then you are not consuming and as a result companies go bankrupt which sends the economy into a continuous downward cycle). To make matters worse, the commission was a joint effort between the European Commission and the U.S. Department of Commerce. You will never guess what their policy recommendations were…
Via techdirt.
{ 3 comments }
This just silly. VC always avoided early stage seed capital. The VC’s only move in after an idea had become a somewhat functioning business. Early stage investing has always been taking up by FFF (Freinds, Family, and Fools) and later by Angel investors. Furthermore, the Angel investing community is growing and is much better organized, capitalized, and more experienced that at any point in history. Many Angels have gained incredible experience through out the 1990′s and the collapse of equity prices in 2000. I suppose, however, we should not be shocked when bureaucrats are incapable of understinading markets or are actively advancing a lie.
Increasing the available pool of seed financing is incredibly easy and obvious: abolish the SEC and its associated regulations. The rules on security registration and accredited investors divert billions of available capital away from small firms.
Hey guys I’ve got this great idea…but I can’t do anything about it because the free markets have failed!
Comments on this entry are closed.