Why is the market so slow? Why does it take several decades to respond to demand?

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com, or follow me on Twitter.

Worth asking the question:

After barely changing at all for decades, the startup funding business is now in what could, at least by comparison, be called turmoil. At Y Combinator we’ve seen dramatic changes in the funding environment for startups. Fortunately one of them is much higher valuations.

…For decades there were just those two types of investors, but now a third type has appeared halfway between them: the so-called super-angels.

…There used to be a no man’s land between angels and VCs. Angels would invest $20k to $50k apiece, and VCs usually a million or more. So an angel round meant a collection of angel investments that combined to maybe $200k, and a VC round meant a series A round in which a single VC fund (or occasionally two) invested $1-5 million.

The no man’s land between angels and VCs was a very inconvenient one for startups, because it coincided with the amount many wanted to raise. Most startups coming out of Demo Day wanted to raise around $400k. But it was a pain to stitch together that much out of angel investments, and most VCs weren’t interested in investments so small. That’s the fundamental reason the super-angels have appeared. They’re responding to the market.

What is the fundamental reason that explains why the market took several decades to respond to the demand?

Post external references

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    http://paulgraham.com/superangels.html
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