Sergey Gribov is the spouse of Flint Capital, a start-up venture capital fund that invests in Israel, the United States and Europe.
In 2021, U. S. venture capital-backed corporations will be able to do so. The U. S. raised $329. 9 billion. This is an accumulation of nearly one hundred percent of the record $166. 6 billion raised in 2020. Most sensitively, early-stage venture capital activity exceeded $80 billion for the first time, and annual exit values soared to more than $774 billion.
This massive budget inflow has skyrocketed startup valuations in 2021. However, as the end of the Covid-19 pandemic seems to be on the horizon, marketers and investors are wondering what the future holds. Can these exorbitant valuations last?Is this investment frenzy sustainable or do we want to prepare for a crash?
Fortunately, the answers to those questions paint a brighter picture than you think.
How the Federal Reserve Influences the Venture Capital Market
The Federal Reserve of EE. UU. es guilty of maintaining the U. S. economy. The U. S. economy is at a steady pace, which particularly influences the global economy. Ultimately, its purpose is to moderate inflation and unemployment by controlling the supply of cash. adjustments made through the Federal Reserve have a domino effect.
In mid-2020, the Federal Reserve pumped a really large amount of cash into the economy to respond to the slowdown caused by the Covid-19 pandemic. According to an official report released in June 2021, from March 2020 to March 2021, the Federal Reserve provided about $5. 8 trillion in cash to the U. S. economy. USA
Much of this consisted of expanding the source of cash through bond acquisitions. The government acquired gigantic amounts of Treasuries and corporate bonds, which pumped cash into the economy. have invested elsewhere. Most of that cash went to the stock market, part to real estate, but a significant portion of that providence was earned through VC.
Seen through this lens, it’s easy to see how venture capitalists have risen so high in 2021.
Current Startup Qualifications
It is important to realize that the accumulation of money is not necessarily distributed lightly. The 2021 Pitchbook-NVCA Venture Monitor has published two findings in particular that are quite revealing.
First, in the U. S. , venture capital investment nearly doubled between 2020 and 2021. Second, the number of transactions increased at the same rate, from 12,173 to 15,500, or about 27 in line with the penny. This means that the trend is towards building up-to-date ratings for a smaller number of startups.
Now, everyone’s consideration is, “Are those maximum valuations here to stay or are we living in a bubble?
Some point the finger at this capital inflow and say that everything will collapse as soon as possible. This is how other market bubbles paint (think housing market bubble and dot-com slump), however, the current venture capital scenario is the same. Valuations of start-ups are more stable.
Has it dried?
The Federal Reserve has already begun to shrink its balance sheet, which worries some. However, does this mean that the cash will run out?
Not really. First, the cash that has already been committed to venture capitalists will not disappear. Although no venture capital investments are accumulated due to a stagnant cash supply, the entire budget deployed in the past is already in circulation.
Second, venture capital as an asset class has traditionally performed better than fair markets. With a turbulent era looming for stocks, it would be a good idea to put money into the venture capital budget to “jump” over the bad times. disclosure: I am a partner in a venture capital fund).
That said, it will take VC longer to raise a new budget, and for this reason, some budgets will deploy capital at a slower pace than in the following two years.
What does the long term hold for start-up evaluations?
Current investment grades are not sustainable as the cash source no longer increases, so there will be a slowdown in venture capital transactions. However, the total amount of cash already committed and available is still high. In terms of valuations, this can be equated with the start-up worth the inflation of a bubble.
In the long term, it will most likely show a flattening of valuation expansion in the early stages. In startups at a later stage, the valuation will vary depending on adjustments in the stock market.
We may also see a “flight to quality” in which smart startups will remain the most sought-after and take advantage of higher valuations, while lower-performing ones will struggle to raise the next investment, which can lead to flat or downward cycles.
As for the existing valuations of startups, I think they will remain stable. Some valuations might fall, but it is vital that this cash is already available in the world and allocated, so to speak. It cannot be “retaken”, which means that there is no need to fear a sudden shock.
In short, I don’t think we’re perched on the precipice of a bubble. The market position would possibly fluctuate, but the budget is in a position to cope with the ups and downs of the coming years. I think the market position will simply place its new equilibrium and neither investors nor marketers will have to worry about a sudden slowdown or unforeseen losses.
The data provided here is not an investment, fiscal or monetary recommendation. Consult an authorized professional for a recommendation related to your express situation.
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