Will the private equity investor bubble burst?
News about funding is easily sensationalized. Emotions tend to run high when people discuss funding trends for startup companies. However, there’s a much more prudent approach. Recently, TechCrunch spoke with seasoned investor cofounder of venture firm Accel Partners Jim Swartz about the current private equity investment climate. As an active investor over the course of a few decades, Jim has a big picture perspective of the cyclical ebb and flow of capital.
Has the bubble burst? Actually, the National Venture Capital Association noted a 59 percent increase in capital raised by U.S. firms in Q1 2016 ($12 billion raised) as compared with Q1 2015. It is possible to have a bubble that doesn’t burst, however. Private equity is more likely to deflate down to a more reasonable number as analysts and the investment community at large discontinue the rapid pace of unicorn valuation. Over time, returns will decrease, but firms that make money will stay the course, and firms that were not able to make money during this cycle of funding will cease to exist. Jim sees the regulatory environment as one key factor influencing the decision for companies to go public, since the valuation required is much higher than it used to be. New funds are bridging this gap.
One interesting change to note in the current investment climate is the emergence of startup hubs and capital outside the classic Silicon Valley VC locale. One of the most promising locations for new startups is Los Angeles, which the funding and startup community as affectionately named Silicon Beach. With billions in funding, a plethora of incubators and accelerators, and a formidable amount of tech talent, we expect to see sustained startup and tech growth in Los Angeles in the coming months.
Read more thoughts on the current VC climate on TechCrunch.