Mark Suster from Upfront VC posted a an analysis recently about the state of the venture capital industry. In particular he focused on the seed stage market which seems to have flattened in the last few years.

One pattern he talked about is how closely technology costs becomes a leading indicator of seed investment behaviour. This seems obvious but these are two separated industries that impact each other. For example, AWS made it cost effective to provision infrastructure for web services, and that made it cheaper to start an startup. This led to smaller seed rounds (and a lot more of them).

This led me to ask - what changes are happening today that might have a similar effect on venture capital down the line? For one, it’s never been easier and cheaper to build a business on the internet. So much so that technology isn’t the biggest cost item anymore - many costs have shifted to driving distribution and sales. You can start a billion dollar retail business on Shopify, and build an enterprise startup on Slack - all with very low technology operating costs.

Therefore in some segments, technology operating costs may not be a predictor of how the seed venture market will evolve. I’m not quite sure exactly what will happen, but it’s interesting to see that one is a leading indicator of another.