Venture Capital: How often does a VC firm look at a sectoral analysis of the economy?
Every day / week. But mainly from public market comps.
VCs are very sensitive to the market multiples in the sectors they invest in.
When multiples are strong, they both pay higher prices, and invest faster.
When multiples are strong and rising, VCs “lean forward” and pay even higher prices, because it looks like the multiple growth will continue.
And when multiples are strong and rising, VCs then often begin to price based on other deals. E.g., $150m pre on $1m ARR may sound crazy. But if Accel just did a “very similar but worse” deal at the same price, well … maybe …
When multiples compress (e.g., Q1′16 in SaaS), prices fall, and just as importantly, the investment pace slows down.
I use the BVP Cloud Index Byron Deeter as my most convenient first-order analysis: