The Good News For VCs Is Firms Get More For Less


It’s a buyer’s market for houses, cars and venture investments.

With investing levels down and fear of disaster high, venture partners willing to take a risk are getting more for their money. And from the standpoint of capital efficiency, startups appear to be getting further with less cash.

According to Dow Jones VentureSource, the size of venture deals throughout the world is in rapid decline.

The reasons are obvious. Venture investors are saving more money for their existing portfolio companies, afraid they will need to support these children longer. At the same time, there is little indication of a rebound in the IPO market, suggesting a payday for their investments is a long way off. So why invest a lot when a return is many years distant?

The result is they are less willing to write big checks, and entrepreneurs are apparently no longer expect them.

In the U.S., the median startup deal size fell 18% in the second quarter to $5 million from $8 million a year ago. This is the lowest its been since 1999.

The fall is especially deep in clean-tech investing, where the median is now $4 million compared with $10 million last year.

Markets overseas are following suit. In Europe, the median deal size dropped 13 percent to $3 million, and, in Israel, the median transaction tumbled 32% to just under $4.1 million.

In India, the median pact is $4.2 million and it is $7.5 million in China.

If there is any good news in this beleaguered industry it is this: money is going further. The decrease may ultimately lift returns and give entrepreneurs a greater stake in the companies they build.

That could prove an incentive for a patient investor.