VC fundraising falls 63 percent -- a good thing for the industry? |
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VC fundraising falls 63 percent -- a good thing for the industry?
This is hardly a surprise, and probably is even a positive development considering the sorry state of the M&A and IPO markets. But the amount of money flowing into venture funds continues to decline.
In the first half of this year, 51 U.S. venture funds have raised $5.1 billion. That compares to 115 funds that raised $13.6 billion for the same period last year, according to a report out today from Dow Jones. And it marks the the lowest first half investment total since 2003.
The 63 percent decline in investments is about the same percentage drop seen in the private equity business. According to Dow Jones, 173 private equity firms raised $54.9 billion in the first half of the year, a decline of 64 percent.
As we've noted before, the venture business is in the middle of significant transformation with some claiming that the traditional model of investing is broken.
Jennifer Rosa, managing editor of Dow Jones Private Equity Analyst, hinted at some of the problems. She said that most venture investors right now are conserving cash and trying to prop up portfolio companies.
"Venture capitalists may not need a healthy debt market like buyout investors to do deals, but the venture industry faces plenty of questions of its own, including a moribund liquidity market and almost 10 years of poor investment returns,” Rosa said.
The trickle of capital now flowing into venture funds actually could be a good thing for the industry, forcing investors to more intelligently place bets on new startup companies.
But if the capital well completely shuts off, it also could have a negative impact on new company formation.
John Cook is co-founder of TechFlash. Follow him on Twitter @johnhcook.
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