VC Cycle and Financial Crisis 2008 Impact

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Questions and Answers

What is the primary reason for the decline in VC investments?

Decrease in startup cities

Slow technology advancements

Inflation and rising interest rates (correct)

Lack of creative minds

What is the current trend in the venture capital cycle?

Stable cycle

Downturn cycle (correct)

IPO cycle

Upturn cycle

What is the primary challenge in driving innovation?

Slow technology advancements

Lack of creative minds (correct)

Financial crisis

Decrease in startup cities

According to the provided information, which of these factors is NOT a trend fueling the boom of the European Venture Capital industry?

Declining investment from US VC funds Signup and view all the answers

What is the relationship between the 'cost of experimentation' and the adoption of new technologies, as illustrated in the provided content?

The cost of experimentation has been consistently decreasing, thanks to technological advancements. Signup and view all the answers

Which of these statements accurately describes the relationship between European and US VC returns, as depicted in the data?

European VC returns have consistently outperformed US VC returns over the past 10 years. Signup and view all the answers

Based on the data provided, which European country has the largest startup ecosystem, as measured by the total value of startups compared to GDP?

United Kingdom Signup and view all the answers

What is the primary conclusion drawn from the analysis of revenue multiple valuations for software companies in Europe and the US?

US software companies are significantly overvalued compared to their European counterparts. Signup and view all the answers

According to the content, what is the impact of AI on the venture capital cycle?

AI will decrease the cost of experimentation and allow companies to achieve more with less capital. Signup and view all the answers

How has the evolution of work, teams, and networks affected the European VC landscape?

It has led to the 'activation' of non-urban regions through virtualized work and teams. Signup and view all the answers

According to the data, what is the trend observed in the number of European cities with unicorns over the past 10 years?

The number has increased significantly. Signup and view all the answers

What is the primary reason for the increased share of US funds in EU venture investments over the past decade?

Mature VC markets are pushing towards Europe. Signup and view all the answers

What is the typical duration of a VC-cycle following public markets?

3 years Signup and view all the answers

In the recovery phase after the financial crisis, which value is expected to be high?

VC dry powder Signup and view all the answers

What trend is expected for private market valuations leading into the next phase?

Declining Signup and view all the answers

What does 'VC dry powder' refer to in the context of venture capital?

Unused capital that can be deployed by VCs Signup and view all the answers

In terms of the venture capital cycle, what is expected during the years 2023-2024?

Low investment/fundraising Signup and view all the answers

What is implied about number of exits/distributions in 2024?

It will be high and increasing Signup and view all the answers

Which statement accurately describes the public market valuations during the anticipated recovery period?

Recovering Signup and view all the answers

Which of the following is a characteristic of the venture capital environment in 2022?

Low number of exits/distributions Signup and view all the answers

What impact did the financial crisis in 2008 have on early-stage venture capital valuations?

They declined substantially Signup and view all the answers

Study Notes

Venture Capital Cycle and Financial Crisis

The VC cycle follows public markets and typically takes around 3 years.
During the 2008/09 financial crisis, US VC valuations dropped by around 39%, and NASDAQ Index declined by approximately 36%.
Pre-money valuations and NASDAQ Index medians were used to analyze the impact of the financial crisis on US VC valuations.

Recovery of Venture Capital Valuations

The recovery of venture capital valuations is foreseeable in the next phase.
The current environment is characterized by declining public market, high private market, and declining investment/fundraising.
Intrinsic value creation through innovation and new technologies is expected to drive the recovery.

Investment Opportunities

Now is the time to invest, as the recovery of venture capital valuations is expected to unfold.
Impressive scalability for online businesses driven by technology advancements, with companies like Netflix, Twitter, and Facebook achieving rapid growth.

Bottleneck for Creative Minds

The democratization of innovation is driving the need for creative minds, with the number of developers on GitHub increasing to 56m.
R&D staff in MSCI world tech companies stands at 1.9m, highlighting the bottleneck for creative minds.

Virtualisation of Eco-Systems

Virtualisation of eco-systems is empowering non-urban regions, with the number of European cities with at least one unicorn increasing to 65.

Decline in VC Investments

There has been a significant decline in VC investments due to inflation and rising interest rates, with European VC investments declining to €61.3 billion in 2022.
The decline in VC investments has created a strong buyer market, with estimated venture capital demanded to supplied multiple at 2.4x.

Market Shift

The market shift has translated into a downturn cycle starting in November 2021, with the Thomson Reuters (Refinitiv) Venture Capital Research Index declining by 50%.
The special opportunity in European deep tech is emerging as the orphan child of VC.

European Tech VC Performance

European Tech VC has been one of the best-performing asset classes in terms of returns, with a 10-year horizon pooled return (net) of 27.5% as of Dec 2022.
European Tech VC has outperformed the MSCI Europe Index and US VC Index.

Conservative Tech Valuations in Europe

Tech valuations in Europe are more conservative than in the USA, with revenue multiple valuations for SW companies in Europe at 5.5x compared to 9.9x in the USA.

German Startup Eco-System

The German Startup Eco-System is still way behind, with the total value of startups as a percentage of GDP at 4.7% compared to 16.0% in the USA and 13.5% in the UK.

Trends in European Venture Capital Industry

4 trends are fueling the boom of the European Venture Capital Industry: acceleration of platform technologies, increasing scalability of new businesses, activation of non-urban regions, and mature VC markets pushing to Europe.

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Description

This quiz explores the relationship between the VC cycle and public markets, and how the 2008/09 financial crisis affected US VC valuations and the NASDAQ Index. It analyzes the impact on VC valuations over a 3-year period.