Venture industry decline?

October 15, 2007 | Matt Marshall | Comments | |

fundraising-chart.jpgIs the venture industry shrinking? It’s still too early to say, but anecdotal evidence keeps gathering.

Only eight new firms raised money from institutional investors during the third quarter, the lowest number for at least two years, and possibly longer (we’re checking). The data was compiled by Thomson Financial and the National Venture Capital Assocation.

Including existing venture capital firms, some 59 firms raised $6 billion, also a drop from the previous quarter. However, unless we see further drops, this still doesn’t mean much, because venture firms tend to raise money in packs, and the money raised doesn’t suggest any significant serious drop-off — at least, yet. The full analysis, including how early stage firms were well represented this time around, is here.

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Matt Marshall is editor and CEO of VentureBeat. Follow him on Twitter at @mmarshall, and follow VentureBeat on Twitter at @venturebeat.

  • I don't see an absence of new funds as a bad thing. There are 1,200 funds out there today. That's 200 more than at the height of the last bubble. Given that returns are always concentrated in the top funds, it's time for some of these funds to go away.
  • Venture capital firms were still working through boom cycle excesses in 2003-2004, so they naturally began to raise new funds in 2005-2006. It is the cycle in my estimation, and nothing specific to worry about. If anything, it shows a fairly strong desire on the part of institutions to continue allocating funds to the "Alternative investments" line item in their budgets...
  • Mike Allen
    Sarbanes Oxley! IPOs were an important exit vehicle for venture capital investments. The Sarbanex Oxley regulatory bureaucracy has killed off many IPOs from taking place. This must have an impact upstream (ie in the venture capital arena).
  • The Problem with VC is that the owner suddenly finds himself with 8 bosses the second he signs that contract.

    I have 8 bosses Bob. Pardon me? 8 Bosses. Eight? Eight Bob! That means that when I screw something up, I have to hear 8 different people tell me about it.
  • If we think of VC as resellers and our startups as the marketable product, then the problem is really that there is not many customers (i.e., liguidity opportunities) for companies. On top of that, it does not take much to build a company these days, so it is non-trivial for the VC's to tell a story when they are trying to raise money. The following is one bootstrapping entrepreneur's perspective on what the VC's are and what they are not (at least from the last bubble).

    How to Turn Your VC into Your Worst Enemy?
    http://www.lovemytool.com/blog/2007/10/vc-worst...

    --Denny--
  • kunal
    The reality behind this issue has more to do with the growing credit crunch that is currently affected the world's economy. VCs aren't the only one's affected. Investment appetite in alternative (and riskier) investments is dying down.
  • They NVCA 2008 prediction survey seems to support the assertion that the number of VC's will decline. Seems like there will be fewer VC's putting more money into industries that need more capital (like clean tech).