Venture Captial Update

The NVCA published its latest numbers on VC fundraising, and as expected they are not pretty. Only 40 new funds were raised for a total of $4.31 billion. Both numbers are just above half the rate at which firms were raising money before the current downturn hit.

While low, these number are actually better than I would have expected. The total amount raised is slightly higher than last quarter. Usually the NVCA numbers in the first press release are about 5-10% below the final numbers, thus one would expect this to look even better. However about 25% of the total funding amount is just from two funds (August and Bain), this might skew the numbers. And I would expect the downturn to continue.

All that being said, it is still pretty clear there will be a shakeout in Venture Capital, and the sport in silicon valley seems to be compiling lists of the walking dead, i.e. firms that have not been able to raise funds, or are no longer making investments. Pick your favorite list from The Funded, VentureBeat (a bit broad), or PEHub (subscription required). To quote John Holman interviewed on PEHub when asked if there was an exodus from the VC industry: ” ‘exodus’ implies that they are leaving by choice, and that’s not generally the case.”

In the end I still think this is a good thing. We have too many active VC firms right now, a number of them of  questionable quality. In the end this doesn’t help anyone, not even the entrepreneur. The reduced cost of capital is outweighed by having more competitors that are being funded, and having to spend more on sales and marketing to eventually prevail over them.

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