The Wall Street Journal covers the hard times in the VC industry. Key quote on the number of VCs able to raise new funds:
Last year, 125 venture funds in the U.S. collected $13.6 billion, down from 203 funds that raised $28.7 billion in 2008 and down from 217 funds that raised $40.8 billion in 2007, according to data tracker VentureSource.
The article goes on to say there were 794 active venture capital firms in the US, down from a peak of 1,023 in 2005. Venture capital returns since the dot com bust have been miserable, so the decline is not at all surprising. We expect several hundred more to go inactive over the next couple of years.
The VCs that remain are mostly raising much smaller rounds. A-list VC Highland Capital is highlighted in the article. They raised a $400 million fund last year - half the size of a fund they raised in 2006.
Our recent experience helping a client raise venture funding reflects the new realities. The company has great technology, experienced and super-bright technologists, and is targeted at a huge opportunity. This is a company that would have quickly attracted multiple VC offers a few years ago.
After a long and difficult fund raising process, the firm secured several funding offers. But the terms were unattractive, so the company (which is still in stealth mode) accepted a buy-out offer from a large corporation.
For the vast majority of small businesses, VC industry troubles are irrelevant. Even during the boom years, VCs only funded 4000 - 6000 start-ups per year. This is only about 1% of employer start-ups.