A little while back we chatted through the point that risks from the

startup market are slipping more frequently into the public markets.
This meant that the regular investor can now get their hands on more
nascent, higher-priced startup equity than before thanks to SPACs and
some, well, interesting public offerings.

But inside that point was the implicit argument that startup risk is also
rising for its private market backers. Let’s talk about what is going on:

*Startup valuations are rising thanks to ample capital availability,

limited investments with strong yield and related issues. You’ve heard
this bit before.
*Startup valuations are also rising thanks to more investors going
earlier in the investing process. Again, you’ve heard this before. But
you may not be aware of how it’s a self-reinforcing issue. Large funds
can invest a stage “earlier” than they might given the size of their
funds, essentially taking out an option contract on a larger purchase of
shares in the startup in question without risking their overall returns
profile.
*Startup risk is rising. You’ve heard this bit before. But if the size of
the market opportunity, the amount of funding, and the quantity of
funding relative to other markets is increasing, then it’s a little odd
that the amount of risk you’re taking is rising as well.

This is not to say that there is no risk. There are risks in all investing.
But, as I’ve been talking about, the amount of risk in the public
markets is increasing.

It’s also worth pointing out that while we’ve been seeing the private
markets getting more participation from big money, the public
markets are still getting more participation from big money.

It’s not that the public markets are not getting any participation at all,
it’s that the public markets are getting more participation than they
were in the past.

In a sense, it’s a good thing that the public markets are getting more
participation than they did in the past. The question is how much of
that participation is more speculative, and how much of it is actually
there to back up the bet.

Let’s start with the public markets. We are seeing more money in the
public markets, and more of it is being invested in riskier tech startups
than in the past. We have seen that, in particular, in the Series B and
Series C rounds.

We saw this reflected in the growth of the total amount of funding in

those rounds from $9.4 billion in 2011 to $17.5 billion in 2012. That’s
an increase of 60%. That increase is not because the private markets
are getting less participation, but because of the rise in the public
markets.