Venture Capital Firms Are Investing Less Money Today Than A Year Ago

According to a Bloomberg report, venture capital funds are investing less cash in startups today than they were a year ago.

Notable Silicon Valley firms such as Andreessen Horowitz and Greylock Partners aren't having any problems raising cash; in fact, they are doing so at levels that haven't been seen since the dotcom era. The fact is they are deploying less of their cash in startups.

Bloomberg cited data from KPMG and CB Insights, which showed that capital allocated toward startups across the world have now fallen for four consecutive quarters to $24.1 billion in the third quarter.

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A major reason for the lower level of investments stems from the fact that even the biggest and hottest private startups, such as Airbnb, are seeing their valuations "cooling."

Venture capital funds are also reluctant to pour more money into startups in later rounds at a lower valuation because it looks bad for their own performance. Instead, venture capital firms are pushing their companies to focus on profit and cutting costs instead of "handing them more cash to let them pursue breakneck sales and user growth."

There is also one final reason to explain the trend. Firms may believe it will be harder to raise capital in the future so they are hoarding a "war chest" to pounce on future opportunities.

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