Jul 6, 2016 ยท 2 minutes

Don’t say we didn’t warn you.

Despite half a year of VCs insisting things were crashing, we’ve got another quarter of data and nothing about it resembles anything that could be called a “crash” or even a “correction.”

Three more months have passed and the narrative around venture capital is exactly the same: The number of funding deals keep falling, the amount of capital keeps increasing, the valuations-- at every single stage-- keep increasing, and the median deal size keeps increasing.

In other words: There is no crash, there are just fewer companies invited to the still-surging boom. A “correction” implies some macro cooling across sectors. That simply isn’t happening. As we’ve been reporting, there are companies that aren’t very strong that are going under. There are sectors where raising funds is brutal. But for thousands of companies the valuations and amounts invested are only increasing.

At the same time exits continue to be woeful. A year ago there were some 418 exits. This past quarter there were just 266. That’s also down for the fourth sequential quarter. Remember all the handwringing over the horrible exit climate at the beginning of the year? In terms of the number of deals, it’s worse now. The capital that came out of ventures in the second quarter was roughly half of the capital invested into new ventures. That’s now how the economics of this industry are supposed to work. (All stats from PitchBook.)

For more than a year everyone had said “something’s gotta give.” Well, apparently it doesn’t.  And the biggest reason is foreign capital. As I wrote a few weeks ago:

Just a few years ago, VCs pooh-poohed the whole emerging market thing, because the money was too corrupt or the populations were too poor or the entrepreneurs were too unsophisticated. But that cash-- some of it clearly being filtered through shady black markets or coming from repressive regimes-- has taken over the asset class that is still being called “venture capital.”

In reality venture capital has become a very small percentage of the money in these decacorn deals. It’s like the country's best junior high basketball team was locked in a playoff game, and the Cavaliers and the Warriors just stormed on the court stealing the ball.

This disconnect between what VCs keep telling you is happening and … reality… is entirely due to the fact that VCs are no longer running the venture business. Foreign capital is ensuring that the biggest success stories that should be “opening up” the public markets never have to go public, despite advice of their own board members. Other VCs have argued that the “cash as a weapon” or “cash as steroids” era of growth is over and companies will need to find a new playbook. For the biggest companies-- which are the ones that will dictate the vast majority of the returns ultimately-- that’s just not true.

Next quarter, my guess is for more of the same. The crowd at the party shrinks a little more (ie, deals completed falls) but those still there get drunker and dance wilder.