VC Time Travel to 2014: What Can We Learn From The Last Cycle?

https://startupstechvc.beehiiv.com/p/vc-cycles-10yrs-ago-investing-in-2014

Writing this newsletter for 13 weeks straight has been an exciting challenge and journey as I strive to become a perpetual student of the game. Recently, I’ve focused on current events, funding, and trends. This time, I thought it would be intellectually stimulating to turn back the clock by 10 years and see what insights we can glean. While we often remind ourselves that past performance doesn’t guarantee future success, looking at the broader picture might reveal valuable lessons that are often missed in the day-to-day minutiae.

The venture capital landscape, especially seed funding, is profoundly influenced by broader economic trends, including market conditions and interest rates. By examining past trends and current data, we can observe patterns that suggest we are once again entering a familiar phase in the funding cycle. So lets delve in and explore these trends with a detailed analysis supported by facts, figures, and charts.

Turning back the clocks to 2014… we dont need roads.

Historically, the venture capital market has experienced cycles of boom and bust, closely tied to economic indicators, interest rates, presidential elections and the rare black swans. Understanding these cycles is crucial for investors and entrepreneurs alike, as it provides insights into the optimal times for raising capital and investing in startups.

In 2014, venture capital funding in the United States hit its highest mark since 2001. Even though deal growth was a modest 8% higher than in 2013, investment skyrocketed by 62%. A staggering $47.3 billion was invested in 3,617 deals, with the tech sector accounting for three out of every four of them.

Unsurprisingly, Facebook’s acquisition of WhatsApp was the largest venture-backed exit last year, valued at a mind melting $22B. Lending Club’s December IPO came second (now down 90%+), valued at $5.4B. The top 10 venture capital-backed exits in 2014 brought in nearly $50B in liquidity! The good ole days of M&A and IPOs…

Put Y&ourself in The 2014 Mindset

1. Economic Indicators and Seed Funding Activity Historical analysis indicates a strong correlation between seed funding and key economic indicators. Following the 2008 financial crisis, the Federal Reserve’s low-interest-rate policies led to a surge in venture capital as investors sought higher returns. The NASDAQ, 10-Year Treasury Rate, and 30-Year Treasury Yield have shown significant influence on seed investment activities.
2. Seed Funding Volume and Valuations Despite high capital volumes, seed round numbers fluctuated. Mattermark (yes an old school startup darling) notes a 30% decline in seed rounds in 2014, even as total investment volume was high, resulting in larger average seed rounds and higher valuations. Something we’re starting to see a lot of right now…
3. Market Bubbles and Seed Funding Fred Wilson’s 2014 blog post on AVC discusses the cyclic nature of market bubbles and their impact on venture funding. Historically, periods of exuberance, like the dot-com bubble, are followed by corrections, affecting startup funding cycles.
4. Notable Venture Capital Deals of 2014 According to CB Insights, some of the most significant venture capital deals in 2014 include:

• Blockchain: Raised $30.5M Series A as Bitcoin found its footing despite volatility.
• Flatiron Health: Secured $130M to bring data to healthcare with Google Ventures as a key investor.
• Flipkart: Raised $1B as eCommerce in Asia heated up.
• Foodpanda: Raised $60M amid the rise of food delivery services.
• Hampton Creek Foods: Raised $90M in the food 2.0 revolution.
• Instacart: Raised $220M at a $2B valuation as dotcom models re-emerged.
• Intarcia Therapeutics: Raised $200M for diabetes treatment developments.
• Jumia: Raised $150M, highlighting Africa’s growing tech ecosystem.
• Kuaidi Dache + Didi Dache: Raised $1.3B cumulatively amid ride-sharing wars.
• Lookout: Raised $150M during a year of security breaches.
• Magic Leap: Raised $542M, showcasing investor interest in augmented reality
• Pluralsight: Utah-based companies valued at $1B, putting Utah on the tech map.
• Slack: Became a billion-dollar company within a year, raising $120M.
• Snapchat: Raised over $485M, becoming a “decacorn” with a $10B valuation.
• Stripe: Valued at $3.5B after raising $150M Series C.
• SunRun: Raised $150M at a $1B valuation, contributing to greentech investments.
• Vice Media: Raised $250M to fuel millennial journalism.
• Xiaomi: Raised $1.1B, becoming the world’s most valued tech company at $46B.
• Zenefits: Raised $81M in 6 months, exemplifying the fast-paced growth in SaaS.

Lets Jump 4yrs to 2018 Which Was the Next Top

By the end of 2018, the venture industry had deployed $131 Billion in US-based startups, surpassing the all-time high in 2000 and illustrating the maturation of the VC ecosystem

With $75.7 billion in VC dry powder, investors funneled capital into the startup ecosystem at a record pace in 2018, boosting deal sizes across the entire VC spectrum. Mega-deals continued to dominate the deal-making environment, increasing in count by 91.3% over 2017. The strength of deal-making over the last several years led to a strong exit market in 2018, with elevated exit sizes driving total value to $122.0 billion. IPOs returned greater than 50% of exit value for the second straight year as IPOs and buyouts continued to scrape away at M&A’s lead as a proportion of exit count and value. Similar to the record deal-making environment, 2018 was also a banner year for venture fundraising as VCs raised over $55.5 billion across 256 funds, the highest total capital raised recorded.

So what did we learn?

• Almost every 4 years there are highs and low like 2014–2018 and what I believe will be 2022–2026
• Funding definitely peaks at the highs then starts to build back up about 2yrs later. Example 2014 boom then 2016 lows. For us it was 2021 boom and 2023 lows.
• Almost every 6yrs is some financial/economic/political crisis happens like 2010 and 2016, then 2022 and I guess something weird/bad will happen in 2028…

https://startupstechvc.beehiiv.com/p/vc-cycles-10yrs-ago-investing-in-2014