Summary:
US Venture industry is still downsizing as a result of the tech bubble in 2000. Of the remaining funds, many only did a few deals, and 27% didn't back any new companies. It takes about a decade for fund to die (long after they have run out of capital to back new companies). The NVCA foresees a 15% decline in the next two years in the total number of venture firms investing in the U.S. (Published: 19/06/08)
Notes:
- 2007: 844 venture firms investing in U.S. companies
- 2006: 884
- 2000: 1200
- i.e. down 30% from the bubble year of 2000
- Many of the active investors in 2007 did only a few deals.
- 45% completed four or more investments.
- 29% made just one investment.
- About 550 firms have made at least one investment in a U.S. company this year, according to VentureSource
- 224 (27% of the total) didn’t back any new companies last year
- indication that the ranks of active investors will continue to thin
- list of firms who made only follow-on investments
- contains some well-known players who have disbanded
- e.g. as St. Paul Venture Capital,
- or who have dropped plans for a new fund
- e.g. Worldview Technology Partners
- along with small firms who have not raised a new fund in years
- National Venture Capital Association (NVCA) is starting to see member firms drop out because they aren’t raising another fund
- Mark Heesen, president: “We are finally seeing what in our view is the beginning of the impact of the bubble.”
- Venture funds typically have a life of at least a decade and firms can soldier on long after they have run out of capital to back new companies.
- Heesen foresees a 15% decline in the next two years in the total number of venture firms investing in the U.S.
- many of them too small to meet the NVCA’s membership threshold of $5 million under management.
- NVCA has about 470 member firms representing 90% of the venture capital under management in the U.S
Comments
- "Unless the retail sucker market is there to allow for the fabled Exit Strategy, or perhaps the dumb money of a corporate acquirer, the VC is frozen in place. So as the macro market is reduced, the VC market attracts less and does less."
- "I think as growth is slowing in the developed world and is increasing in India, China, other Asian countries and Africa, VC’s are better off investing there. It does not make much sense to invest in a slow market."
- Did the change in options accounting or SarBox (Sarbanes-Oxley) have any impacts on the VC’s inability to drive an exit strategy?
- This subject merits more attention and I’d suggest the journalist focus on a firm such as Worldview to understand and report what’s really going on in the venture industry. Partner conflicts, pressure to ride with the herd (of other VCs all pouring money into the same companies), lack of respect for entrepreneurs, assuming “we know better than the entrepreneur”, killing the golden goose, hubris, etc. [...] That’s the Worldview story–most general partners left and are still leaving, most entrepreneurs were sold down the river and scarred, limited partners heard about all this and when performance lagged they refused to invest anymore. Talk to GPs that left, founders and founding CEOs of companies like Force10, Mirapoint, Cemaphore, PostPath, OnStor, CommVerge, ...
