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??
