How far will VC funding fall?

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In this issue

Follow-up: Remote work forecasts from September have been scored (if you made one, you’ll see how you did)
Make a forecast: Will US venture capital funding keep falling in Q4?

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Remote work forecasts, scored

In September, Nonrival partnered with Stanford economist Nick Bloom to forecast the trajectory of work-from-home and whether it would keep declining as the pandemic eased.

We asked: How likely is it that the share of full, paid US work days done from home is 29% or higher in September? (In August it was 29.5%)

The average of readers’ forecasts was 44%, suggesting the crowd thought it was slightly more likely than not that work-from-home would decline to below 29% of full-time work days in September.

The September data is out: 29.1% of full, paid work days in the US were done from home, according to Bloom’s survey.

That means higher forecasts scored better, because the September value was in fact 29% or higher.

(You didn't make a prediction that week or else you'd see your personalized forecasting results here.)

How far will VC funding fall?

The decade-long tech boom is over, at least for now. Venture capital funding in the US plunged in Q3, dropping 40% from Q2. Third quarter investment was about half of Q3 the year before.

Like so many other sectors of the economy, VC is being dragged down by rising interest rates, lower growth prospects, and ongoing uncertainty. But will VC funding fall even further? Or will it start to rebound? The answer will help determine the fate of a generation’s worth of tech startups.

Background

US VC funding rose steadily from 2010 through 2020, then shot up in 2021. Funding has declined every quarter of 2022 so far. Even so, 2022 has already seen more VC funding than any year other than 2021.

The last big VC bust was in 2001. It took more than a decade for US VC funding to match its dotcom peak. But the asset class was much smaller and less mature, and tech was a much smaller share of the economy.

VC investment depends on the amount of money looking for risky, long-term investments and on the number of promising technology startups. But in the short-run, VC can depend on mood and momentum. As Eric Paley, a VC, puts it: “People have to be able to dream to invest in stuff.”

VCs are sitting on a record amount of committed capital. The case for VC rebounding is that this “dry powder” will eventually get spent. But VCs can choose to slow the pace at which they invest that money.

Perspectives

“[Limited partners who fund VCs] want to slow down… They have broad exposure to the market, and when stocks plunge rapidly, they may no longer have the amount of liquidity from other asset classes that their models had predicted… Fewer new funds will be raised…VCs want to wait out this fundraising storm.” —Micah Rosenbloom, Founder Collective

“Our dry powder model suggests that the VC industry will have only a modest slowdown this year in comparison to last year, and will continue to see record levels of investment in 2023 and 2024.” —Jon Sakoda, Decibel Partners

“Startup founders should expect a tidal wave of venture capital interest next year as a record level of dry powder pressures VC funds to step up their investment pace” —Kate Clark, The Information

“More than 2,600 VC funds have been [raised] since the beginning of 2020… That is roughly the same number that US markets saw [raised] from 2006 through 2015… The dry powder and high number of VC funds bodes well for seed and early-stage investment over the short and medium term.” —Kyle Stanford, PitchBook