Will startups lose out if appetite for risk-taking continues to fade?

In this week’s column, Kehlan Kirwan writes on Silicon Valley and VCs and asks whether startups will lose out if the appetite for risk-taking continues to fade. There are signs some companies are getting bigger slices of the pie.    

Las Vegas is all glitz and no glamour. Sure, when you look at from a distance it looks fantastic. The bright lights and of course the promise of big money and fortune-making. Delve deeper and you realise that things are not so sparkly.

The underbelly is exposed with the tiniest of scratches. That city is a great tribute to the American dream that anything is possible and that there is no reward without risk.

Silicon Valley is the Vegas of the startup world.

During the recent Global Entrepreneurship Summit, co-founder of Google Sergey Brin, was asked about advice for startups looking at Silicon Valley to start their journey.

His response surprised a lot of people. If you can help it, don’t start in the valley.

“During the boom cycles, the expectations around the costs — real estate, salaries — the expectations people and employees have... it can be hard to make a scrappy initial business that is self-sustaining,” he said.

“Whereas in other parts of the world you might have an easier time for that.”

Ideas on venture capital, and indeed on the very definition and what makes an investor, have begun to change as well. In a recent interview with Startup Grind, lean startup pioneer Steve Blank commented on what a venture capitalist actually is.

He said that most venture capitalists aren’t interested in changing the world, they are in it to make money.

“While they might like you, you’re just part of a liquidity Ponzi scheme,” he said. “Their only goal is to make you liquid or go public. They will support you to do that, but that’s about it.”

Silicon Valley still remains the place for large-scale investment. If you have big dreams and need big money, it’s still the place to be.

However, those big money investments are few and far between. For most, the prestige is in the name, not in the place. Silicon Valley is no longer the oasis in the desert. Startup scenes around the world are beginning to mature.

Ireland has a number of VC firms.

There has also been alarm at the way the billions in funding coming out of the area are distributed.

Massive investment into companies such as Uber and Snapchat have meant that the wells are drying up for smaller startups as venture capitalists aim their sights on the big prizes.

Those holes need to be filled, and the reality is that some companies aren’t going to get filled in the Valley.

However, it also shows that perhaps VCs have become more selective about what they invest in.

Yes, they are going for what looks like sure things in the big names of tech world, but they have also become more pragmatic in where they put their money.

Early stage and angel seed rounds of investments dropped from 1,532 to 990 in the final quarter of 2015.

But those deals still accounted for over $2bn, almost the same amount of money than the same time previously.

PitchBook, a VC database and information service, recently released a report which showed securing seed funding and advancing to the Series A round is tougher than it’s ever been.

So far this year, only 1.2% of startups that closed seed deals completed Series A rounds. That’s the lowest rate on record.

There is no reward without risk. What has become increasingly obvious is that investors want the easy reward and less of the risk.

The startups at the bottom are becoming increasingly marginalised.

As the bright lights of the Valley increase, it appears its risk appetite is slowly fading.


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