Over the past decade, Crunchbase reports that the worldwide market for venture capital funding accelerated into a total of $1.5 trillion between 2010 and 2019. The majority of these deals were made in the latter part of the period, with $294.8 billion invested in 2019 alone. Globally, 2019 set the record for the number of deals closed in a year and placed second in total dollar volume.

With this in mind, the drop in Q4 2019 funding as compared to Q3 2019 may not seem important. Q3 2019 also set an all time high in venture rounds, which Q4’s 8,183 rounds were not quite able to match. The huge tell for market skeptics, however, is year over year total investment.

Unlike Crunchbase, CB Insights and PWC chose to focus on the 42.5% drop in funding when comparing Q4 2019 to Q4 2018 (corresponding to a 9% drop in year over year funding), and with good reason. The last time startups received this much money in a single year was 2000 – $119 billion – right before the tech bubble imploded. Q4 2019 VC tallies actually represented a 16% loss compared to Q3 2019, which also fell  from Q2’s record breaking total of $34.8 billion.

To its credit, Crunchbase predicted that total dollar volume in 2019 probably would not exceed that of 2018. Although funding was relatively high, they found that dollar volume growth remained “stagnant across multiple stages of the investing lifecycle” in their Q2 2019 VC report.

Correction or Recession?

2018’s banner year in VC investment was coupled with a banner year in successful growth. 2018 represented the highest number of ‘unicorns’ – 151 or 158 depending on who you ask – added to the list of private companies with a valuation of more than $1 billion. Investors enjoyed a 52% increase year over year on those companies.

Crunchbase added 142 companies to its Unicorn Leaderboard in 2019. The number is certainly impressive, but does not outstrip 2018. Considering that older entries into the unicorn club, like Facebook, Airbnb and Lyft, no longer require private funding, we may be looking at a case of VCs simply being all dressed up with nowhere to go.

Or we could be looking at a market correction that many say has been in the works for quite some time.

Led by WeWork, high profile high-tech IPO implosions in 2019 didn’t do much to inspire new blood. 2018 also had some of the largest single funding rounds in the history of investments. Take away the huge growth rounds from WeWork, Ant Financial and ByteDance, and the $20 billion that doesn’t get invested makes 2018 look a lot more like 2019.

By all measures, including analyst prediction, 2018 seems to be the peak. From here, prospectors in all markets may want to pay attention to clues in company fundamentals to see if investments will continue to pay off.

The Late Stage Bull Market

If we are to believe that investments from VC firms like Andreessen Horowitz, Sequoia Capital and Accel help drive the direction and pace of innovation, we are likely in the latter stages of a bull market that has propped up investors and VCs for over a decade. VCs may be pulling back funding and looking to cash in on capital as we enter the 2020s, but this doesn’t mean the new market landscape has to resemble the tech crash of 2000.

“In [the 2000 bubble], portfolio returns accelerated rapidly as the bull market neared its end,” Mark Hulbert of MarketWatch tells us. The loss of high momentum in speculative markets is often a leading indicator of further downturns in the market. When that happens, a downward spiral is created where VCs invest less, and the cycle continues until a pattern-break.

On the other hand, MIT economist Paul Samuelson tells us that “Wall Street has predicted nine out of the last five recessions.” In other words, if you scream recession or pullback long enough, eventually you will be right. At least in the short term, VC funding looks to remain steady – tech and biotech prospectors rejoice.