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State of the Venture Capital Industry |
HenryTo
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 Posted: Sun Mar 01, 2009 1:37 pm Post subject: State of the Venture Capital Industry |
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Trends in the Silicon Valley VC Industry (which provides 40% of all VC financing in the US) as of 4Q 2008. Also contains some numbers for the entire US VC industry:
http://www.fenwick.com/publications/6.12.1.asp?vid=8&WT.mc_id=2008.Q4_BK_email
| Quote: | The amount invested by venture capitalists in the U.S. in 4Q08 was approximately $5.5 billion, a significant decline from the $7.6 billion invested in 3Q08 and the $7.9 billion invested in 4Q07. The total amount invested in all of 2008 was $28.8 billion, compared to $31.4 billion in 2007.
Fundraising by U.S. venture capitalists was $24.7 billion in 2008, which amount was the lowest amount raised in a year since 2004.
There were 65 acquisitions of venture-backed companies in the U.S. in 4Q08, for a total of $3.8 billion, a significant decline from 75 transactions totaling $4.8 billion in 3Q08 and 123 transactions totaling $16.4 billion in 4Q07. There were 325 acquisitions of venture-backed companies in the U.S. in all of 2008, totaling $23.5 billion, the lowest dollar amount for acquisitions since 2003, and the lowest number of deals since 1999. Additionally, the age of acquired companies increased for the seventh straight year, with the median time from initial equity funding to acquisition reaching 6.5 years in 2008. |
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State of the Venture Capital Industry Replies |
nodoodahs
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| Posted: Sun Feb 28, 2010 8:05 am Post subject: |
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Interesting paper on PE. Since VC is a subset, it's applicable here.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1557360
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose. |
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nodoodahs
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| Posted: Wed Feb 24, 2010 3:22 pm Post subject: |
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The “traffic/public transport” analogy is very similar to the one I use when someone pulls a “the world can’t support this many people!” diatribe, i.e., say to them “you could do YOUR part in alleviating that ... “
Hmm, VC makes no money the last decade ...
Considering that VC is basically just an equity investment + an illiquidity premium, it’s no wonder that VC makes no money in a decade in which the major equity indices didn’t make money and during which there were several events that put a premium on liquidity.
So you could say that the proper amount of investment in VC funds is a function of the underlying equity return. If equities overall had been booming, VC returns would have been just fine, with plenty of IPOs, I think, even with the same amount of investment over the last 10 years.
To me (as an outsider), the biggest problem with VC in the last decade isn’t the money in it, or even the underlying conditions that make VC less profitable, but the concentration on the consumer-focused internet applications and tech. Nobody wants to build a better restaurant chain. It’s not tech or ‘net. Likewise, I hear about a lot of “cloud” BS but little of it B2B, it’s all consumer.
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HenryTo
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| Posted: Wed Feb 24, 2010 2:28 pm Post subject: |
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One more look at why venture capital is in trouble and how that affects the rest of us:
http://www.technologyreview.com/business/24565/
| Quote: | Around the same time Juniper went public, Silicon Valley venture capitalists were putting money into a new networking startup, Procket Networks. This time, the initial investments were bigger, and over successive rounds of financing, Procket collected almost $300 million in venture money. Three years after it started, though, the company had still not launched a product, and in 2004 its assets were acquired by Cisco in a fire-sale deal. This time the VCs walked away with just a fraction of their original investments.
The difference between those two stories is, of course, the difference between the world of the late-1990s technology-stock bubble and the world after that bubble burst. But of late, it also seems like the difference between the historical image of venture capital and the harsh reality of the current business. A decade ago, venture capitalists seemed like genuine alchemists, able to turn even startup dross into purest gold. In recent years, however, the industry has seemed less magical than mundane. Since 2004, its average five-year return has oscillated around zero. High-priced IPOs have become rare events, even as VCs have continued to pour tens of billions of dollars into new companies every year. As Fred Wilson, a principal at Union Square Ventures, bluntly puts it, "Venture capital funds, as a whole, basically made no money the entire decade."
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But it won't be enough for VCs simply to change what they invest in and where they invest. The real problem is not complex: there's too much venture capital, and there are too many venture capitalists, for the industry to be really profitable. The industry as a whole now has about $200 billion under management, more than twice what it did in 1998, and venture funds invested $20 billion to $30 billion a year for most of the past decade. And on the level of individual funds, huge amounts of capital combined with falling startup costs have, in Anderson's words, made funds "musclebound": a $500 million fund can't make too many small investments, even if that's what would make economic sense, because the partners don't have the time to supervise hundreds of companies. (This is one reason, along with the desire to limit risk, that many VCs have started to wait until later rounds to invest.) In the absence of another bubble, there's no way for new companies to generate profits big enough to provide a reasonable return on $20 billion to $30 billion a year. Kedrosky, for one, argues that for the industry to consistently generate competitive returns, annual investment and money under management need to fall by more than half. And while Wilson describes himself as "very optimistic" about the coming decade, he says that the industry "needs to return to the size and shape it was in the late '80s and early '90s."
The interesting thing is that this diagnosis is not especially controversial. Most people in the industry think there's too much money. It's like traffic, though: everyone thinks there's too much of that, but no one wants to take public transportation. And while in most businesses competition takes care of the problem by forcing the losers out, here winnowing takes much longer, because venture capital isn't like the stock market: if you get disillusioned, you can't just pull your money out of it. The limited partners who invest in venture capital funds make long-term, binding commitments to meet the "capital calls" of the general partners who manage the funds and make investments. This is, from the perspective of innovation, venture capital's great strength: instead of needing a quick return, it can afford to build companies. Nonetheless, it creates what Wilson calls "a huge amount of latency in the system." So even though the industry has been moving toward a more sensible balance between money under management and potential returns, it takes a long time to push underperformers out. |
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HenryTo
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HenryTo
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HenryTo
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Location: Houston, Texas & Los Angeles, California
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| Posted: Wed Jul 08, 2009 8:35 am Post subject: |
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First quarter fund-raising blues for VC funds, courtesy of peHUB Wire:
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*** Venture capital funds raised just $5.1 billion in the first half of 2009, according to data released this morning by Dow Jones. This represents a 63% drop from the same period last year, and is the slowest first half since 2003.
The decrease was felt across sub-asset class. Early-stage firms raised $2.7 billion for 36 funds, compared to the $5.2 billion raised by 43 funds in the first half of 2008. Late-stage firms were off more than 53%, while multi-stage funds were down more than 68 percent.
Expect these numbers to be largely mirrored in an upcoming report from the National Venture Capital Association and Thomson Reuters. Preliminary data indicates that the overall first-half total will be a bit higher, but the year-over-year change is virtually identical. As of last check in the VentureXpert database, U.S.-based VC funds raised just over $2 billion in Q2 2009. That’s more than a 50% drop from Q1 2009, and a 79% drop from Q2 2008. |
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HenryTo
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| Posted: Tue May 26, 2009 7:58 pm Post subject: |
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What VCs are currently investing in:
http://www.technologyreview.com/business/22697/page1/
| Quote: | "SolarWinds is evidence that software-as-a-service works," says Sunil Dhaliwal, a general partner at Battery Ventures. Instead of selling physical software, the company's products are distributed and maintained via the Internet. Some observers have questioned whether this approach to selling software is economically viable, especially when faced with competition from more established companies. The answer, Dhaliwal says, is "yes across the board."
Enthusiasm for Web startups has, however, clearly changed since the height of the Web 2.0 boom. This is due partly to tighter economic constraints, but also to plummeting costs of starting Web businesses as cloud-computing infrastructure has spread. Since less capital is required to start a company, there is less need to turn to outside investors.
"I think most [Web] startup companies should not take venture-capital money," said Jeff Fagnan, a partner at Atlas Venture, during a panel discussion. He cited, in particular, companies building lightweight Web applications or software for portable devices like the iPhone. In some cases, Fagnan said, venture capital may damage a startup by creating conditions that push the company to aim too high from the outset. |
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HenryTo
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HenryTo
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