Venture capital’s delayed rendezvous with reality

The venture capital bubble is facing a slow and messy unwinding. After a historic boom that puts even the tech bubble of the 1990s into the shade, an adjustment to more rational conditions has started. But structural factors and the psychology of private markets make it hard to tell how long this will take — or what will emerge on the other side.

Two contrasting pieces of news last week make the point. One is the confirmation that Klarna has had to accept a radically lower valuation in order to raise fresh capital. The Swedish buy now, pay later company’s latest fundraising values it at US$5.9 billion before the injection of new cash, an 87 per cent slide.

The other is that there is more money than ever trying to crowd into the venture capital market. At the end of June, venture funds had a record US$290 billion on hand waiting to be invested, according to data from PitchBook. That is fully US$100 billion more than was burning a hole in their pocket as recently as 18 months ago.