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Venture Bubble

As VentureBeat reported yesterday, VC investing is at a six-year high.  Yes, things have 'recovered' back to pre-9/11 levels.  I don't think that this is necessarily good as there is lots of evidence that the venture industry is in a bubble, particularly in Silicon Valley.

First, some good news:

  • Cleantech seems to be one of the growth areas.  I think that is a good thing, overall.  There are some subsectors of cleantech, like solar, that are overheated.  But, overall, this is a new sector that deserves some new investment.  Every VC firm I know is thinking about investing in cleantech if they aren't already.
  • It's also good that some of the big overhang of funds raised gets invested.  As there has been so much money raised, it's better to see VCs making some bets rather than sitting on the sidelines.

The bad news:

  • Silicon Valley grows while most other regions are flat or down.  This makes me think that the Valley has to be in a bubble.  Anecdotally, I see quite a few Valley start-ups getting funded that seem to be the 8th or 10th players in their market segments.  That can't be good.
  • New England is down dramatically, which is consistent with how this region feels.
  • Company creation is down and later stage investing is overheating.  The average deal size is now the highest it's been since 2000.  That also can't be good.

I would hate for another VC bubble to burst as cycles in the venture business are long -- it takes a while for a bubble to inflate and the impact of its bursting is also felt over years.  We need a VC Greenspan to give us a soft landing.

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