Well, what have you done for me lately, right? Investors, less than thrilled with the returns that venture capital funds have been delivering, are taking their money and going home. The number of new funds launching has thus dropped precipitously, and it looks like the industry will be smaller, with fewer players, according to the National Venture Capital Association.
Of course, the next wave will attract many to ride it, and that could be enough to turn the tide (once again).
If the current trend continues, there could be as few as 104 to 118 new funds by the end of the year. Compare that to the dark days of 2001 -- when dot-com dreams were dashed -- when 234 new funds were noted. With a time frame that can stretch to 10 years, it can take a while for investors to get the payday, and patience is always a casualty of a recession.
Mark Heesen, president of the National Venture Capital Association, tells Reuters, "You are going to see a reduction in the number of firms, but more important you will see a reduction in the number of venture capital professionals."
Returns on venture capital funds have been under pressure for several years, and liquidity events are taking longer to attain, which is among the causes of investor frustration with the sector. Says Jennifer Rossa, managing editor of Dow Jones Private Equity Analyst, "Exit numbers are not winning over limited partners who are steering clear of later-stage funds."
Of course, all of this is point-in-time. What data doesn't always reveal is what's coming next. The cleantech sector has been pretty strong this year and could become the next rising star. If this is the case, the VC industry may come back, especially given the larger amounts of capital necessary to start these ventures (compared to software startups, for example). So, while the situation may look at tad grim now, the VC world is far from out.
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