Is Venture Capital Intrinsically Cyclical?

AngelList

Abe Othman

Research

14 Pages

AngelList explores whether venture capital returns are inherently cyclical rather than simply distorted by infrequent private market pricing. Using nearly 1,500 Seed investments from 2015 through 2017, the analysis suggests startup valuations move in persistent waves, with only about 23% of monthly changes reflecting new information.

Key Takeaways

Returns Follow Cycles: Monthly venture returns exhibited strong persistence, with autoregressive coefficients of 0.35 and 0.42, indicating valuation trends often continue for multiple months rather than immediately reversing.
Risk Is Understated: Reported annualized volatility measured just 9.3%, but unsmoothing the data increased volatility to 30.7%, revealing substantially larger underlying swings in venture valuations.
Information Travels Slowly: Analysis of nearly 1,500 Seed investments found roughly 77% of monthly valuation movements reflected cyclical dynamics, while only about 23% represented new information.
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