(Pitchbook) Overnight it seems the venture industry has ground to a standstill. The ‘unicorn’ term now means overly inflated valuation in the process of negotiating a down round. The daily news is now full of departing CEOs, layoffs, zombie unicorns and who’s next punditry. How did this all happen and with such speed? Is there an economic model that can explain the boom and bust of this complex market?
Well, it turns out its pretty simple—a shift in the demand curve for venture capital followed by two shifts in the supply of venture capital led to a market way out of its long run equilibrium range. This led to a fragile situation where the recent market correction caused a dramatic short-term shift in supply of venture capital, taking us to where we are now.
