In a similar vein to my post from a couple of days ago about how poor Q1 2009 VC exits were, today there are reports that Q1 was also very poor for venture capital funds looking to RAISE capital to invest. While this isn’t a surprise, the actual dollar amount of the drop was pretty stunning: $2.4 billion raised vs. $6.7 raised in Q1 2008. That is very substantial 64% drop. Only 23 VC funds raised $, as compared to 57 in the first quarter of last year.
This is bad for entrepreneurs, because fewer venture firms and less money means it will be much harder to find firms with dry powered to invest in their startup. To make matters even worse (for the true startup seeking funding) the types of funds that invest in young companies dropped even more. Early stage and multi-stage (funds that do both early and late stage investing) dollars raised dropped by almost 70%.
There is a lot behind this drop. Some funds are not trying to raise money right now due to the economic climate. Many limited partners (those who invest in venture funds) are having liquidity problems and are not able to invest in anything, let alone a fund with a seven to ten year horizon. But there could be something more sinister here – the VC model has not created great returns for investors since the dot.com crash. Are investors starting to lose faith in the asset class of venture capital??
April 3rd, 2009 at 11:52 pm
Again quite dramatic figures. You are trying to install a "fear atmosphere"…
It's not only that the VC asset class returns were below the S&P (negative alpha) but it is also that the decorrelation effect from other asset classes is not as great it was tought. A negative alpha with high decorrelation can make sense in terms of asset allocation but not when the latter is too low.
April 4th, 2009 at 7:59 pm
Not trying to cause any undue fright, but it is funny that VCs spend so much time analyzing other industries and don't usually think that much about their own industry's current situation.
April 5th, 2009 at 8:13 am
I'm sure you are not, was just kidding.
April 6th, 2009 at 5:48 pm
When we visited the game parks in Uganda last year, we saw whole sections of the grasslands intentionally torched so that new growth would come back more robust and support more game. The end of each quarter has become a time for ritual wringing of hands, and it is hard to imagine what will change to cause the next quarter to be different. Having said that, we are still seeing a steady stream of promising start ups, and today one of my clients called up with news of a very nice exit. It may well be that, once we get that last few pending disasters behind us (GM's filing Chapter 11 for example), we will see a nice rebound across the economy.
April 6th, 2009 at 9:57 pm
I very much hope so…