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Venture Capital Fundraising Absolutely Abysmal

October 12, 2009 at 2:13 pm PT

thesandhillroad_thumb-150x150 What a lousy year this has proven to be for the venture capital industry. According to data released today by the National Venture Capital Association and Thomson Reuters, venture funds raised just $1.6 billion in the third quarter. That’s down 82 percent from a year ago and 21 percent from last quarter. Worse, that sum was raised by just 17 funds, the fewest since the third quarter of 1994.

Seems a paucity of IPOs and lackluster returns on investment have caused VC money to dry up. This does not bode well for an industry in what NVCA President Mark Heesen likes to refer to as a “Darwinian contraction”; “You are going to see a reduction in the number of firms, but more important you will see a reduction in the number of venture capital professionals,” Heesen told Reuters.

Tagged with: data, digital, econalypse, financial, innovation, IPO, John Paczkowski, Mark Heesen, Michael Moritz, National Venture Capital Association, NVCA, return on investment, Sequoia Capital, Smallbiz Feature, third quarter, Thomson Reuters, VC, venture capital, venture fund

comments so far. Add yours.

Sam Harrison

Venture firms brought it on themselves for not making investments … Most if not all firms I know are busy scanning biz plans and slide shows but lack the guts to actually invest … go ahead, send over a biz summary to one, any of them, and you’ll get a reply from some kid who knows zilch … and the senior partners are too busy on vacation or building yachts… Or just wasting time showing up to their sand hill road office to collect mgt fee from their investors … It’s broken folks
Alex Ross

Agreed with Sam above that they lack little in guts or vision these days.

In addition, I just that the economics have changed.

On the funding side, there is much more that can be done cheaper these days between open source, offshore, etc. Even with physical good there is just so much more than can be done with little money upfront by partnering, etc. $200,000 from friends and family or angels can go pretty far these days…

On the exit side, the VC model is always looking for the big home run- defensible IP or another “unfair advantage” that can create that $50m revenue company. I think there are fewer and fewer of those “unfair advantages” these days in an industry as fliud as tech is…

Thirdly, the strains alone of growing the 40-50% per year VCs need for their returns kills many otherwise good businesses.

I do think that if VCs changed their targets, and were willing to look at firms which may well provide 30% growth rates over time, they would have more hits and fewer failures…