venture capital

In last week’s Digest article – Alternatives to VC: Reconsidering the Startup Financing Paradigm – SSTI examined the conventional venture capital (VC) model as well as its advantages and limitations. In this installment, we will highlight alternatives such as revenue-based financing, venture debt, crowdfunding and a new financing model for cleantech proposed by Massachusetts Institute of Technology (MIT) researchers. We also take a look at the potential that these alternatives have for the field of tech-based economic development.

Venture capital (VC) financing is a highly competitive process that backs only 1 percent to 2 percent of all startups that apply for funding, leaving many searching for financing alternatives.  In this two-part feature, SSTI examines the typical VC model, its advantages and limitations, and next week will highlight alternatives such as revenue-based financing, venture debt, crowdfunding and a new financing model for cleantech proposed

Despite Brexit and political uncertainty in the U.S., stability is returning to the global VC market as investors shift from new unicorn chasing and a renewed interest in global initial private offerings (IPOs) by late-stage startups, according to a new report from CB Insights – Venture Pulse Q3 2016.

While the number of companies receiving venture capital (VC) backing continues to decline, the amount of money invested remains near record levels. As of Q3, the annual investment total for 2016 is approximately $56 billion invested across 6,000 companies.

After an extremely strong venture capital market in 2015, the industry seems to show the signs of a decline driven by both cautious and fatigued investors. Three recent studies from Pitchbook and CB Insights indicate that there are several reasons why venture capital firms and other investors have been more cautious so far in 2016 including: mixed economic growth numbers; a volatile political climate; and, more security in private markets.

A spate of recent news challenges many common perceptions of venture capital. Academic researchers have identified critical shortcomings with widely used industry data. Major investors have revealed smaller than anticipated returns. An analysis of thousands of investments indicates fund success requires superstar deals of well more than 10x. These articles should drive new evaluations of public policy and programs to support early stage capital.

Startup failure is the rule, not the exception. However, much startup ”failure” includes businesses that made a workable product and grew — just not fast enough to attract venture capital. A hybrid venture capital-private equity approach is trying to identify these slower-growing businesses as part of an investment model that may provide an exit strategy for spurned startups throughout the country.

For the 10th consecutive quarter, the venture capital (VC) industry invested $10 billion in a single quarter after investing $15.3 billion in Q2 2016, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA).

At the end of 2015, there were concerns that the Venture Capital (VC) industry had peaked and there would be a quick return to 2013 VC investment levels.

The University System of Maryland (USM) recently announced a $25 million fund to invest in USM-affiliated companies or startups created by students, faculty and recent graduates.  Companies already based in USM research parks or university incubators are also eligible for funding.