How sovereign wealth funds are inflating the Silicon Valley bubble

Description

The entrance of sovereign wealth funds into the previous cottage industry of venture capital has fuelled unprecedented levels of “dry powder” (money that the VCs need to invest). With more money at their disposal than ever before, VC managers are investing more money in each deal, and making more deals. Recent quarters have seen a previously unforeseen number and size of “mega deals” (deals worth more than US$1 billion).

This all means that when – as historical precedent shows is likely – the VC bubble bursts, the fallout will be massive. And in the wake of such a bubble burst, there will be scant capital available for the many start-ups that have raised early-stage funding on hefty valuations. Investors, including the sovereign wealth funds, will be burned by the big losses, and so unwilling to invest in risky start-ups, or in venture capital funds, for years.

Period	21 Aug 2018
Degree of Recognition	International