VC funding runs out of gas

From 2003 to 2007, VCs had little trouble raising capital for their funds. During this period, the amount raised spiked from $10.6 billion to $35.5 billion.

It's kind of curious, actually, because during this time venture deals have lagged. The primary reasons include the lackluster IPO market and muted M&A environment. Perhaps those who invest in VC funds were being patient. Hey, aren't these vehicles long-term?

Well, maybe not. If anything, it looks like investors are backing off. According to a report from the National Venture Capital Association, there was a 21% drop in VC fundraising last year. The total was about $28 billion.

In fact, VCs raised a mere $3.4 billion in Q4. Simply put, investors are looking for liquidity – and this means avoiding VC funds.

Interestingly enough, it's mostly large funds that are getting dollars, such as Accel Partners (which got a cool $1 billion). This means that there will likely be more focus on larger deals, crowding out the smaller ventures.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.