VC Shakeout – Fewer but stronger firms

An article that was just published in the online magazine SFGate highlights some significant findings in the Venture Capital industry based on a recent study by the University of San Francisco. According to University of San Francisco Professor Mark Cannice, VC confidence in the near term outlook for valuations and exists rose during the third quarter of last year. This despite a number of negative trends in the Venture Capital industry including notable declines in both the number of active VCs and number of deals.

Some of the statistics in the study are staggering (such as an 80+% decline in the number of active VCs since 2000) with the obvious conclusion being that the Venture Capital industry is not immune to the laws of Darwin’s principles. VCs that have invested poorly have simply gone out of existence as their dismal track record impeded their ability to raise subsequent funds. The good news is that, although fewer in number, the firms that remain are financially stronger and better able to fund portfolio companies through successive rounds to a successful exit.

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