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Venture Capital or Bubble Capital ?

In the 1800s there were many ventures or business ideas that needed funding but banks were very scared to give out loans without much to lend against. Then came agents that would provide the money in exchange for profit sharing. At that time most of the money was used on tangible assets and slowly but surely one of the investments would make much more profits than they could imagine. And finally, in 1946 it took an official turn, and the first venture capital fund called ADF Fund was formed.

This is a brief view of the evolution of the Venture Capital industry. But in recent years it has changed the mechanism. In present times there are more investments made in intangible assets than tangible. The risk factor has increased manifolds as $450Bn plus liquidity is available to be deployed.

But in the past eighteen months post first set of lockdowns there has been a tsunami of fresh entries and exits by the venture capital firms that make no valuation sense even with all rapid expansions. For reference, the USA saw 45 such listings this year and currently they stand at a loss of $75Bn in market cap since listed.

The same trend is being been seen in India where many companies have become unicorns(valuation above $1Bn) and have been not even in operations for more than two or three years. And in a similar context though there has been a positive listing of such companies recently will they sustain such valuation when the results and other operational realities catch up as the fundraising mechanism changes.

This is not going to change in a month but if the results of risk involved rise quickly then there is not a quick exit available.


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