Mon 8 Feb 2010
Venture capital funding dropped 47% from 2008 to 2009, while total money invested dropped 38%, according to the year-end industry stats provided by the National Venture Capital Association and Thomson Reuters. The numbers are representative of the skittishness of venture capital funds over the last few years.
Comparing the Numbers
To put these numbers in perspective, the 2009 year end total venture capital funds raised was only $15.2 billion. That's the lowest amount of venture capital fundraising since 2004, when the total was $19.1 billion. Keep in mind that venture capital reached a high of $36.1 billion in 2007.
In terms of total venture capital investment given to startup business, the total for 2009 was $17.6 billion, down from a six-year high of $30.5 billion in 2007.
Analyzing the Facts
What do these numbers tell us? The president of the NVCA, Mark Heesen, said in the press release, "Many venture firms stayed out of the fundraising market in 2009, a dynamic that is clearly reflected in the lower volumes." Heesen goes on to say that 2010 will be a defining period as "...firms will not be afforded the luxury of continuing to wait for market conditions to improve in 2010."
Looking Forward in Venture Capital
The amount of venture capital activity in both fundraising and investing in 2010 will define how venture capital will conduct business in the next decade. Heesen states," all signs point to a leaner, more capital efficient asset class comprised of firms with proven track records of delivering value to limited partners. Not all firms will make that cut, but the ones that do will be very well positioned to invest."
What we do see projected in 2010 is that venture capital firms are cautiously optimistic, according to the Annual Predictions Survey conducted by the NVCA. 63% of all respondents predict that total venture capital dollars invested will remain the same or increase in 2010. 44% of those say they expect to see an increase to $21 to $25 billion in financing.
However, the most respondents, 90%, agree that the number of venture capital firms will decrease over the next five years. 72% state that VC firms will decrease between one and thirty percent.
The bottom line is that 2009 was the lowest for VC funding and investment in five years, and 2010 will be a litmus test for the VC industry for years to come. You can find more stats and interesting data at the NVCA website.