What is the barbell effect? And Why does it Matter?

For many people, this is a term they use at the gym.  In the venture industry, it is a metaphor for the many individuals and small venture funds that invest into many seed-stage companies and at the other end of the barbell is all the venture, growth, hedge and mutual funds that have enormous amounts of money.  These groups are investing in later stage and mature companies driving up valuations of maturing startups.

So it should look like a barbell with weight on both sides.  Now that you have a visual you can see why this can be a concern when it looks very different.  A new report out by CB Insights and KPMG have basically stated that the barbell looks more like a ski slope now.  There has been a drop of significant proportion in small seed fundings and many deals today that are deemed seed look more like a Series A and sometime as large as a Series B round.  So we are seeing an end to Seed investments while we are not seeing any drop-off in the mega-financings. In fact, 23 new billion-dollar-plus companies were created in the third quarter alone, up from 12 in the third quarter of 2014.  This is an enormous gain and tipping valuations to a point of concern.

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