The startup bubble that no one is talking about
33 comments
·August 28, 2025Havoc
lemonlym
Great points! Obviously this analysis is not unconfounded as the methodology is pretty scrappy.
On point 3, I think both large and small investment groups saw large growth. This is lightly supported by the spike in filings related to SPV as a service companies like Angellist.
kerblang
Bubbles are largely a function of finance, not tech; if there is a lot of easy money available, it wants somewhere to go, and any tech will do (recall XML startups...).
Interest rates are one of the biggest factors, because of how they create indirect pressure on cash availability (which is the whole point of raising interest rates).
Everyone is bracing for tariff recession as well, which may cause a lot of investment capital flight.
tryitnow
As someone else mentioned just looking Fund+Number doesn't exclude non-VC funds. However, the 2024 NVCA report supports the OP's thesis: see page 17: https://nvca.org/wp-content/uploads/2024/05/2024-NVCA-Yearbo...
dadrian
Most Fund I’s are going to be smaller funds, often $9.99MM to allow for a larger number of smaller LPs due to the $10MM threshold from the SEC. Whereas Fund II-IV are going to be considerably bigger, often hundreds of millions of dollars. So a large number of smaller funds falling off won’t make that big of a dent in the total dollars available, but may make it harder to get the smaller initial checks.
topaz0
Not that it would drastically change the conclusions, but do the numbers for "fund i" include the forms that say "fund ii" etc (by virtue of the fact that "fund i" is a substring of "fund ii" etc)?
lemonlym
You were actually right. I went and checked to see that some (not all) values were double counted. I've updated the graph to reflect this, and added a note. The trend remains identical, despite this change. Thanks for inspiring me to double check.
pentamassiv
It doesn't look like it does since "fund I" >> "fund II"
FabHK
As we'd expect if the numbers for "fund I" include both "fund I[^I]" and "fund II"?
JCM9
VCs were literally pitching to startups to take their money during the pandemic (there were several articles about that at the time). That nonsense will now come home to roost as companies that took money at those hyper-inflated valuations will now need to face reality.
LPs that let their money get tied up in such nonsense are also about to head into a world of pain. I fear the present AI bubble will only exacerbate the pain as both sets of bad investment decisions come crashing down around the same time.
grogenaut
I had some VCs try and pitch me on joining a few companies as an advisor. When I didn't bite they pivoted to me just making a company. "What idea" I asked. "I'm sure you have some good ones, let us know." They said. "Money is cheap right now, ideas aren't".
I doubt they'd return my call today.
cantor_S_drug
Money was so cheap then, I remember a VC fund which would match ideas to founders and get them to success because of how versatile and multifaceted the VC team was. :D
CalRobert
Geeze, I had a product with real users and a path to monetisation and I got ignored… is it because I was in Europe?
PhantomHour
In part it'll be Europe, though VC in the "throw money into a fire" style does/did exist.
But VCs, especially in those days, bordered on antipathy for sensible business plans. They didn't want small businesses that would turn profitable quickly and grow sustainably. They wanted something with infinite growth ASAP that they could pump-and-dump on Big Tech or IPO suckers.
barbazoo
> and I got ignored
Socializing our losses here, aren’t we? If it works out you did it, if it doesn’t, it’s the others that didn’t see the value :)
CalRobert
Hah, fair enough! Also you’re more likely to hear about startups that get funded vs not.
JCM9
Yes
moralestapia
>VCs were literally pitching to startups to take their money
LMAO, true. A "friend" from that space was making money introducing VCs to "entrepreneurs", lol. He was fully booked!
ddddang
[dead]
drdrek
Good, many bad companies will release good developers to work on more productive things. It's healthy for everyone.
nine_k
Maybe healthy, but will likely depress developer salaries even more.
whoiskevin
This assumes that these startups had good developers.
FirmwareBurner
I think everyone knew, even without looking at any data, that startups were in a bubble thanks to Covid, when every "shoeshine boy" was studying to be a webdev at a start-up.
Like how many food delivery apps that are actually profitable can the economy handle?
dsr_
The problem is usually not "there are 300 food delivery services" but "there are three food delivery services and they control the market".
PhantomHour
It's a business model problem; The "Uber" business model relies on a monopoly.
The business model is 1) "Have artificially low prices to push all competing business into bankrupty", 2) "Now that we're a monopoly, raise prices massively", 3) Massive profit, so long as no government starts doing anything about the fact that both steps #1 and #2 are illegal.
That business model fails the moment you have multiple startups dumping the market, none can move to step #2 because they'd bleed all their users to whichever competitor is still in step #1.
dheera
It's restaurants that don't want to deal with 300 apps. They will pick the top 3 and call it a day.
TylerE
I think the real real giveaway is that like 90% there's a big exit, it's an aquihire and the "product" is quickly dumped.
JCM9
Yep. Many / most aquihires are pretty ugly financially. While the headline sounds impressive (“X startup acquired for $250M”) the reality is that with preferred cap tables and terms most folks see nothing and investors are merely trying to recoup some losses or make a modest (less than S&P500 index fund return) return on investment. It’s basically a fire sale to salvage what’s left from the wreckage.
Founders might get a little something and most shareholder employees get nothing.
nkingsy
Don’t they usually get a better stock package than the average new hire?
lihaciudaniel
AI bubble is people saying AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI AI
It's akin to someone saying he build a machine but doesn't explain what it do?
I'm in an adjacent space so quite interesting to me. Couple of concerns:
1) This Fund+Roman Numeral notation is universal among funds. Meaning this data isn't VC. It's use of fund structures. Real estate, PE, private credit maybe bit of hedge funds etc...and yes also VC.
2) Filling trends are affected by jurisdiction fashions so to speak. One of the big fund jurisdiction makes a small rule tweak and everything pivots there. Or away. The funds we're setting up today are structured differently and in different jurisdictions than 2 years ago. Same for regional focus. Think about what that does to a single jurisdiction trend analysis like this.
3) The spike coincides pretty neatly with covid, lockdown and that sudden injection of cash trillions into the financial system. So a spike in fund entities registered makes sense. Haven't looked at who got those trillions, but I'd wager it was bigger institutions not young VC operations starting their first fund.
Still the core hypothesis seems sound for funds overall. Regardless of type a lot of these funds will indeed be on a 2-4 year investment period. So it does broadly check out that there might be a softening of funding supply coming up.