The NVCA Numbers are here, and they look worse than I would have expected. Only 25 new funds were raised in Q2/2009 vs. 82 funds in Q2 of last year.
Typically the initial tally by the NVCA increases by 15% or so as additional closes are announced (see Estimate in the graph for where I think we will end up), but even then this number is very low the worst we have seen in the last decade. Total capital raised was $1.7 billion.
Given that a typical venture fund runs 4-5 years, and assuming 1.5 parallel funds per firm (e.g. health care and IT), the average firm has to raise funds every 3 years or go out of business. With 25 funds per quarter, this means the fundraising can sustain 300-350 firms total. Given that we have 800-900 active firms now, expect a major shakeout. It will be interesting to see where it stabilizes. The NYTimes suggests between a third and half of VC firms will disappear. This would require fund raising to go back to a level of 40 new funds per quarter, which seems possible.
And again, for the firms that survive as well as for the LPs this will be a good thing. VC returns have been too low for the past 9 years, and this development is the start of correcting this.