Venture fundraising: Going, going, gone?

January 19, 2009 | Anthony Ha | Comments |

Venture capital funds raised only $3.4 billion in the last three months of 2008, according to new data from Thomson Reuters and the National Venture Capital Association. Unsurprisingly, this is a big drop (about 70.9 percent) from the same period in 2007, when venture firms raised $11.7 billion, and also a substantial decline from the $8.4 billion raised in Q3 of 2008.

Now, you’re probably as tired as I am with the barrage of bad news, but it’s probably not going to stop anytime soon. And these numbers are significant because they’re some of the first we’ve seen to quantify the effect of the late September/early October financial crash on the venture industry: After all, the Q3 numbers from Thomson Reuters and the NVCA mostly reflect fundraising before the crisis, while the survey of VCs predicting that the IPO market won’t pick up until 2010 was just (educated) speculation.

The number of follow-on funds (basically, additional money raised for existing funds) compared to new funds also increased during Q4; the ratio of follow-ons to new ones was three-to-one, compared to two-to-one during the same period last year. Two of the quarter’s three biggest funds were raised by Accel Partners, which raised two funds totaling more than $1 billion. The second-largest fund was raised by VantagePoint CleanTech Partners.

For all of 2008, venture firms raised $28.0 billion from 211 funds, a 21.4 percent decrease from 2007.

Much of the drop can be attributed to obvious factors relating to the financial crash and the resulting market uncertainty, but NVCA President Mark Heesen also says many firms are busy investing the money they raised in the last two years. The NVCA will be releasing its numbers on Q4 venture investing at the end of the week, so we’ll soon see if that’s true. Let’s hope it is.

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About the Author, Anthony Ha

Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.

  • Peter Antypas
    There is another underlying trend here that you didn't mention: The Internet Era spoilt VCs with 2-5 year liquidity windows. Those days are over. VC money will increasingly go towards cleantech and biotech (non-pharma) investments, all of which have both higher capitalization needs than software and longer paths to liquidity.
  • Good point, Peter.
  • I also believe the VC's that invest with a long-term perspective will be the ones to make it. However, I think some tinkering with the model must be done. I've said it before.. I see a lot of pointing fingers but not many solutions on both sides (and this is coming from a VC).

    For this reason, I'm putting on a conference on February 23 featuring Adeo Ressi that proposes to bring together VC's and entrepreneurs to talk about innovation, the vc model and the change that may need to take place. You can learn more about the event here: http://innovation2009.eventbrite.com
  • Yes, I heard Adeo was putting an event together. Looks quite cool, though I'm disappointed it's not going to be in the Bay Area. Everyone should do what's convenient for me.
  • Early stage investing will always be considered a high risk, high reward game. But what if there were smarter, more efficient tools that enabled both investors and entrepreneurs to optimize the process by making the investment process “less gut” and “more guided," could we eliminate some of the fear and confusion surrounding early stage investing and begin to truly optimize entrepreneurship? Maybe if VC firms focused on innovating rather than just collecting their management fees the whole game would change.
  • Did you have anything specific in mind? What do you think of YouNoodle? http://venturebeat.com/2008/08/07/younoodles-st...
  • Younoodle is a joke. They claim they can predict the value of a startup based on some fairly arbitrary things, but I do like the initiative they have shown in the space; getting the community together is a great thing. Take a look at http://venturephenomeproject.com/ for some interesting work that's being done with the Buck Institute to try and isolate the specific attributes of a company that may or may not contribute to its success There are some leading genetic scientists who work trying to isolate cancer causing genes embedded in strands of DNA who are working on the project. I think its a good start.
  • A great bunch of thoughts on the subject: http://cli.gs/g3BA9v