Announcing the Silicon Valley Venture Capital Trepidation Index
Venture capitalists calling for smaller funds and for more of an old-school approach to investing, your calls have been answered. VC investments last year were the lowest since 1997, according to a report from PricewaterhouseCoopers and the National Venture Capital Association released on Friday.
In 2009, venture capitalists invested $17.7 billion–37 percent less than in 2008 (see chart below; click to enlarge). And they funneled that money into just 2,795 start-ups–37 percent fewer than the year prior. The sectors where these declines hit hardest: Software, clean tech and biotech.
“The venture capital industry had no choice but to slow the investment pace in 2009,” NVCA president Mark Heesen said in a statement. “The weak exit environment resulting from an unstable public market combined with a challenged limited partner base sent a strong message to the venture community to pull back the reins–and the VC’s listened.”
While the market for VC investments in 2010 is likely to remain tight, the situation is improving. Said Heesen: “Now that the economy has begun to show signs of improvement, we expect to see dollars flow more freely back into those sectors that offered the most promise before the recession began–clean technology, life sciences and IT. The seed and early stage pipeline needs replenishing across all industries and the health of the startup community in the next decade will be dependent upon more robust first-time financings. 2010 should be the year to begin that process in earnest.”