When venture capital slows down: freak out

True venture capital doesn’t leave town, that’s the stupid money

In 1999 and early 2000 it seemed everyone was getting into internet startup investing and calling themselves venture capitalists. Yes, American Express opened a swanky office in downtown San Francisco for the express purpose of investing in internet startups. Wall Street banks did likewise, and soon we were reading about B rounds and D rounds with banks and credit companies participating directly.

This is called the stupid money. It’s like an old fellas poker game being disrupted by a very drunk very rich guy who sits down to play with a tall pile of chips. Not that banks and American Express are run by dummies, but their Johnny-come-lately entry into the investment frenzy that has created so much paper wealth is a symptom of their corporate FOMO and a nonstrategic decision to join a bandwagon they do not properly understand.

This is where we are in 2021. The stupid money has arrived late to the gold rush and is participating in VC rounds where traditionally you saw only the usual suspects from Sand Hill Road, and perhaps a hungry VC from China or Japan. The new landscape pushes up valuations and so far these have mostly survived IPOs quite well, not evaporating the paper wealth that was inflating furiously during their venture rounds.

When the stupid money pushes valuations up and makes capital available to fledgling businesses that previously may have…