The Role of Market Cyclicality in Venture Capital Investments

This article was originally published on my Looking Ahead blog.

I have been studying the history of venture investments. I’ve been fascinated by how the cyclicality of the markets impacts the failures and successes in venture capital investments. Like how the public markets go through cycles of over-optimism (i.e., greed) and over-pessimism (i.e., fear), venture capitalists also go through these cycles. They are very highly correlated, and there is some lag between them. I’m not concerned about how to time these cycles to become a better investor; I wanted to learn how to identify these cycles and assess my position.

Venture fundraising, investing, and exits come in cycles. Understanding those market cycles makes VCs better risk managers and decision-makers.

My goal is to enhance my decision-making prowess as an investor significantly. Understanding past investment trends, sectoral performance, and how VCs have navigated market cycles can help you identify opportunities when everybody is just running in the opposite direction. I wanted to collect enough data and stories to analyze successful and unsuccessful investments to reveal the key factors influencing a startup’s success or failure, providing a more nuanced understanding of due diligence. Furthermore, the history of exits has been a…