[patmcguire]

Macro-scale deflationary spirals happen in real economies, it's definitely a thing that can happen for investment in an industry. If there's a general belief that VCs can get more for less tomorrow, they'll wait, at which point they can probably get more for less the next day...

Also, don't forget the money's all locked up for multiple years.

[tdaltonc]

True. And the textbook solution for a deflationary spiral is to increase inflation. VC's have to raise rounds that run for finite periods of time. At the end of the time the have to return the money with their big returns. That means that the money is like grain rotting in a granary. There is a looming data at which all of the money becomes useless the the VC's. That's one hell of an inflation rate. It would be hard for VC's to resist that level of inflationary pressure for long.

[patmcguire]

That's interesting, I hadn't thought of the funds being inflationary pressure. I don't know quite how to model that, in a totally rational world it's something like:

expectation of yield within x-1 years for investments in year y+1 over expectation of yield within x years for investments year y

And that's what portion of value waiting gets you. If the yield in that first year is negative, they're going to wait no matter what. 1x is better than (<1)x.

Although then you get into how VCs get paid, mostly on the upswing... you're probably right. 1x gets no carried interest.