To great fanfare analysts welcomed the VC fundraising data for 2011. You must be kidding me. According to VentureWire (published by Dow Jones), apparently there were 135 funds which raised $16.2 billion in 2011, as compared to 154 in 2010; Thomson Reuters/NVCA counted $18.2 billion raised by 169 funds in 2011, of which 49 were first-time funds. The NVCA identified 38 funds which raised $5.6 billion in 4Q11 alone. Of those 38 funds, 9 were “first time” funds and 4 were over $1 billion in size. Not bad you say.
So here is what the analysts don’t say. Let’s stay with the VentureWire data: of the $16.2 billion raised in 2011, $10.5 billion of that was raised by only 15 firms. That means 120 firms raised the remaining $5.7 billion for an average fund size of less than $50 million. That does not make sense to me. It certainly did not feel that robust to me and I am in the market every day.
But what does make sense to me is that the VC industry is both rapidly contracting and concentrating around a small fraction of the firms in the industry. The NVCA counts over 400 active members and presumes to represent more than 90% of the capital under management today. My guess is well below a 100 firms nationally can predictably raise a new fund in this environment.
Other NVCA data to ponder: in 2007, 237 funds raised $31.1 billion; in 2008 those numbers were 212 raised $25.9 billion; 2009 – 161 raised $16.4 billion; 2010 – 169 raised $13.8 billion – a five year low point which coincided with 10-year VC industry return numbers being negative. This year showed an upturn in overall dollars raised but it was driven by fewer, larger firms. Now that the 10-year industry returns data is once again positive, hopefully dollars will flow back into the VC industry.
What do you make of this? Is it good for entrepreneurs?