Too Much Money Chasing Too Few Exits ?

  Fundraising by VCs hit a crescendo in 2007 according to NVCA, jumping almost 10% from 2006, totaling to about $34.7 billion. What's even more impressive is that number is almost 9 times (!) the amount of money raised in 2002, merely 5 years back. Contrast that with recent statistics on exits: first quarter of 2008 saw just 5 IPOs amounting to just over $280 million according to research by NVCA and Thompson Financial. The IPOs hit a low not seen since 5 years ago. Similarly the number of M&A deals totaled 56, the lowest in a decade.

While it's incredibly difficult to reconcile the exits with the investments, since most of the former transactions occur years after the latter, it's clear that the venture industry will face tremendous pressure this year.

It will be interesting to watch this space in the next months. Without a doubt, this trend is likely to bring a lot more attention to early stage investing, as well as force funds to move up on the funding cycle chasing lower risk deals, and acting more like PE funds.

Comments

[Jon Bischke]

The traditional venture model seems a bit broken these days (at least for consumer Internet). Guys like you + Maples + Conway + Paypal mafia. Interesting to watch (and participate in!).

Plus I think stuff like Venture Hacks is gonna shake things up more than most realize.

And good article from Forbes on this phenomenon.

http://www.forbes.com/2008/04/04/mitra-venture-capital-tech-intel-cx_sm_0404mitra.html?partner=email