INVEST - Where's the money??

crunchbase Shows VCs Favoring Later-Stage Plays In Q4

According to Joanna Glasner's article in crunchbase on Tuesday, the money for early stage and growth investments seems to be drying up.

"Overall, investors put a projected $21.9 billion into seed through technology growth stage rounds in Q4, down from a projected $28.1 billion in Q3. Deal count fell most markedly at the earliest stages, with the projected number of closed rounds for seed-stage startups down by more than one-third from the prior quarter.

The Q4 pullback contrasts with upbeat comparables for the full year. For all of 2017, U.S. and Canadian startup investors put a projected $89.4 billion to work, up from $82 billion in all of 2016. A smattering of really big, mostly late-stage rounds, boosted by SoftBank’s unprecedented spending spree, contributed to the higher annual totals."

While Glasner points to several elements that have changed, she notes that emerging companies need to do a better job of finding exits for those who support them with early stage capital.

A Financial Times article that also appeared on Tuesday seemed to indicate investment in ag tech was up overall:

"Investors ploughed more than $700m into agricultural tech companies in 2017, according to research firm CB Insights, a big step up compared with the $332m and $233m invested in 2016 and 2015 respectively."

Upon closer examination, two very large investments identified in the article contributed the lion's share of this investment:

"Deere and Co, the Fortune 500 tractor maker, bought Blue River Technology, a Silicon Valley start-up that uses machine learning to make agricultural spraying equipment more precise, for US$305M. DuPont spent US$300M to acquire Granular, a San Francisco-based company making computer software for farmers."

InfoStream recommends these articles as they provide a good overview of the situation. They don't, however, show an easier path to capital for startups. Capital seems to be moving downstream toward larger more advanced plays. The rate of disruption in the digital economy and the extraordinary success of plays like Amazon have surprised even the most optimistic digital observers.

Amazon's success is growing so rapidly, it has forced every other retailer to become an aggressive acquirer of innovation or begin to imagine how they might get out of the game. Morgan Stanley suggested last November on CNBC, that based on their analysis Amazon will hit a market cap of US$1T within a year. Barrons put out a calculation last September that projected Amazon would hit a market cap of US$1.6T.

And it isn't just retailers that are feeling this pressure. Disruption, consolidation and aggregation seem to be apparent in every industry sector. It really isn't surprising that investors are being a little shy.

The world has changed and as InfoStream already identified, capital for that necessary, risky, difficult area from Proof of Concept (POC) until well into the growth stage is very hard to find. Furthermore, this disruption to capitalizing innovation is not because of a lack of capital.

The new US tax laws will likely allow the repatriation of capital from distant shores adding to the existing surplus of capital. The reason more capital isn't employed in early stage, innovation is very likely uncertainty about which projects will be successful in a new digital economy that has changed the game so quickly.