First, gather nuts…


What is the first response to scarcity?  Hoard.  The mantra of every preschool playground holds true for venture investors (as it does for most everyone else).  New data (summarized here) shows that initial company financings are increasingly undertaken by a single VC firm (rather than syndicated across several venture firms).  This is consistent with other trends, particularly since the lack of viable exits has resulted in venture firms holding their ownership stakes longer, while their portfolio companies often require additional capital. An early stake is thus more likely to get crammed down.

A larger initial ownership percentage can mitigate this dilution. Interestingly, the data shows that once the initial investment is made, venture firms once again look to spread risk, consistently syndicating out later rounds.  And, also unsurprisingly, capital-intensive industries were more likely to see deals syndicated, even in early rounds.

In fairness, the article notes that the percentage of single-firm financings in an initial round has been rising since 2003, so scarcity is likely one of several factors.  However, the past 18 months are roughly 50% higher than the average for the first half of the decade. Among the other indications of a consolidating market is the increased proclivity of self-interest.  As my five-year-old is often told (and also totally ignores), sharing is caring.