Yesterday I posted a quick analysis I did comparing equity market inflows and Venture funding. My main point was that the Valley has done well recently because venture dollars have been relatively easy to find. Many VCs have had an ‘easy’ time raising funds from Limited Partners (LPs, aka people and institutions with money to manage), and as a result the VCs have been willing to do a lot of funding. This process really picked up in 2010 because stock market funds were not doing well, so LPs shifted their investments to other asset classes.

My argument was that as the Fed meddles less in the markets, stock market returns should improve and this will likely mean the LPs are going to shift their dollars back to the stock market. I pointed to a few signs of this already happening – smaller shops quietly closing their doors and the scarcity of big funds raised this year.

I also mentioned other asset classes that have done well – namely emerging markets and commodity funds.

So this morning I could not help but notice the headlines. Overnight most of the emerging markets stock markets fell, some like India, fell sharply. The New York Times and the Journal  both have good coverage.

Bottom line: changes at the US Fed have strengthened the US Dollar and raised borrowing costs in many countries, which has led LPs to shift their investments elsewhere. Same theme.

The big difference between the Valley and say Turkish real estate is that the process will be much more gradual here. And unlike the 1990’s Internet Bubble, most private companies today have grown up on various ‘lean’ or capital light models. That does not mean the Valley is going to avoid a crunch, but it should (might) cushion the impact considerably.