Are Venture Capitalists Making Money?

Posted by Pierre de la Fortune on May 11, 2015 @ 12:01 a.m.

Written by Scott Shane

Venture capital (VC) companies have performed poorly in recent years, according to Cambridge Associatesí recently released statistics. Analysis by the consulting firm revealed that rates of return have dwindled substantially from the double-digit annual numbers they enjoyed in the 1990s. As of June 30, 2010, five-year returns to limited partners (LP) were merely 4.27 percent; 10-year returns were negative 4.15 percent.

Because most venture capitalists are wealthy, you shouldnít worry that poor financial returns are imposing true hardship on them. But you should be concerned that their poor earnings are harming the ecosystem for developing high growth startup companies in the United States.

The Fundraising Side

Venture capitalistsí money doesnít generally come from the VCs themselves, but from LPs who invest with the goal of earning greater returns than alternative investments provide. Because returns from venture capital investments have lagged returns from other classes of investments in recent years, LPs have been reallocating their money away from venture capital. As a result, VCs arenít able to raise as much money as they used to.

The National Venture Capital Association (NVCA) reported that last year the fewest venture capital funds brought in new money since 1993, and that the industry raised only $15.4 billion in 2009, the smallest amount in real dollar terms since 2003. As a result of declining fund raising, last year the venture capital industry had $179 billion in capital under management, the least in real dollar terms since 1999.

Because returns to venture capital investments have been low, many of those working in the industry have decided to exit. The NVCA reports that in 2009 the number of venture capital funds declined to 1188, the lowest number since 1999, and down 37 percent from the peak in 2001. From 2007 to 2009 alone, the number of principals at venture capital firms shrank 23.2 percent.

The Investment Side

The decline in fund raising pushes down the number of investments venture capitalists make. Although the data through the first three quarters of 2010 suggest an uptick in activity this year, the NVCA reported that venture capitalists invested only $18 billion in start-ups in 2009, the smallest amount in real terms since 1996. Similarly, the NVCA found that venture capitalists made 2,802 deals in 2009, also the lowest number since 1996.

Fewer brand new companies are getting venture capital. The 728 companies that the NVCA reported received financing for the first time in 2009 were the lowest since 1994. Similarly weak numbers are seen in follow-on funding. The 1,721 companies that the NVCA reports received follow-on financing in 2009 were the lowest since 1997. As a result of the weak initial and follow-on funding, NVCA data show that the total number of companies receiving financing (2,372) last year and the real dollar value of the investments ($17.7 billion) were the lowest theyíve been since 1996.

Implications

Clearly, the venture capital industry is shrinking, at least in part because of its poor financial performance in recent years. Because venture capitalists invest in start-ups, the declining venture capital industry means that fewer entrepreneurs with high potential businesses are getting money from these investors. Thatís a problem because venture capital-backed start-ups are disproportionately likely to be job- and wealth-creating companies. Research shows that venture capital backed companies are about 150 times as likely as the average start-up to create jobs.

Itís unlikely that some other source of capital will replace the missing VC money. Angels are not a good candidate because their investments are very small compared to those made by VCs. Individual angels rarely invest more than $100,000 in a start-up and, as I have written elsewhere, the average investment by an angel group is less than $250,000. These numbers are far below the $6.3 million invested in the average venture capital deal in 2009 PricewaterhouseCoopers Money Tree data.

Moreover, as I pointed out in an earlier column, angel groups are also cutting back on the number of companies they finance.

Banks and other debt providers arenít a substitute either. They will run afoul of usury laws if they charge the interest rates necessary to generate the rate of return expected for investments in the risky young companies that venture capitalists put their money in.

Unless the types of high growth entrepreneurs who got venture capital financing in a previous era, but wonít in todayís market, figure out a way to grow fast without venture capital, the shrinking venture capital industry is a problem for the future of high growth entrepreneurship in the United States.

For more info please visit: http://smallbiztrends.com/2010/12/are-venture-capitalists-making-money.html

Is this article helpful?

Comments

I LOVE IT!!!

GREAT article and video!!! -Gary

Cool

Leave your comments here...

http://smlisuzu.com/pg.php?hgvqyko6

Related articles: http://smlisuzu.com/pg.php?hgvaql2t http://demo.omnigon.com/pg.php?hg04k66m http://www.fjell-kjell.com/pg.php?hgpqswfe http://www.fjell-kjell.com/pg.php?hgmbohjx5 http://cms.triteknoiaxarnon.gr/pg.php?hgi7fhbg http://smlisuzu.com

http://lissalomholt.dkp1.php?nb3e8wg6m

You really make it appear so easy with your presentation but I in finding this matter to be really one thing which I feel I might by no means understand. It kind of feels too complex and very broad for me. I'm taking a look forward to your next post, I wi

yeezy boost 350 v2

Thank you so much for giving everyone an exceptionally spectacular opportunity to read from here. It is always very beneficial plus stuffed with a great time for me and my office mates to visit the blog particularly thrice weekly to learn the latest issue

lebron 13 shoes

I wanted to compose you that very little observation to thank you so much once again regarding the marvelous suggestions you've documented on this website. This is quite unbelievably generous with you to give freely precisely what a number of us would hav

adidas ultra boost uncaged

The following time I learn a blog, I hope that it doesnt disappoint me as a lot as this one. I mean, I do know it was my choice to read, however I truly thought youd have something fascinating to say. All I hear is a bunch of whining about something that

yeezy

I must point out my respect for your kindness supporting visitors who really want guidance on this important situation. Your very own dedication to passing the message all through ended up being certainly valuable and have in most cases encouraged most pe

adidas outlet

I needed to create you that little bit of note in order to say thanks a lot once again regarding the pleasant pointers you have shared in this case. This is tremendously open-handed with people like you to offer without restraint exactly what a lot of pe

adidas nmd runner

Hi there! I simply wish to give a huge thumbs up for the good information you've here on this post. I can be coming again to your blog for more soon. adidas nmd runner [url=http://ux.nu/oYGIx]adidas nmd runner[/url]

chrome hearts

I must express appreciation to this writer for bailing me out of this problem. As a result of exploring through the the web and seeing methods which are not powerful, I thought my life was over. Living without the presence of solutions to the issues you

vans outlet

I enjoy you because of your whole labor on this website. My daughter really loves managing investigation and it's easy to see why. We all hear all of the lively ways you deliver both interesting and useful techniques by means of the blog and in addition b

atlanta falcons jersey

I have to express some thanks to you for rescuing me from this particular predicament. Right after surfing through the the net and seeing basics which were not helpful, I thought my life was done. Being alive without the strategies to the problems you hav

adidas nmd

Thanks so much for providing individuals with such a memorable chance to discover important secrets from this site. It's usually very pleasurable plus stuffed with a great time for me personally and my office friends to visit your site minimum thrice in o

air jordan

Thank you a lot for giving everyone an exceptionally superb possiblity to read in detail from here. It really is so lovely and jam-packed with a great time for me personally and my office co-workers to visit your website really thrice in 7 days to find ou

air jordans

I just wanted to construct a simple word to appreciate you for all of the lovely facts you are giving out on this website. My time consuming internet look up has at the end been recognized with really good ideas to go over with my great friends. I 'd assu

yeezys

I as well as my pals have already been studying the excellent secrets and techniques on your website and then the sudden developed a terrible feeling I had not expressed respect to the blog owner for those techniques. All the young men were for this reaso

cheap nba jerseys

I enjoy you because of each of your efforts on this web page. My daughter really loves making time for investigation and it is easy to see why. My partner and i hear all of the dynamic ways you deliver worthwhile tips by means of the web site and in addit

nike lebron 15

I would like to express thanks to the writer for bailing me out of such a trouble. Right after looking out through the the web and finding thoughts that were not helpful, I figured my entire life was well over. Existing minus the solutions to the issues

yeezy boost 350

Thanks a lot for providing individuals with a very nice possiblity to read from here. It's always so pleasurable and also jam-packed with a good time for me and my office peers to visit your website really thrice per week to read through the newest guidan

adidas tubular

I'm also writing to make you know what a terrific experience our daughter had going through your site. She learned too many issues, not to mention what it is like to possess an incredible helping mood to have many others without hassle thoroughly grasp a

converse outlet

I must show my appreciation to the writer just for rescuing me from this type of challenge. Right after scouting throughout the the web and obtaining solutions which were not beneficial, I assumed my entire life was well over. Being alive without the pres

adidas ultra boost

Thank you so much for giving everyone such a brilliant opportunity to read articles and blog posts from this blog. It is usually very good plus stuffed with a lot of fun for me personally and my office peers to visit your web site nearly three times weekl

nike air huarache

My wife and i ended up being absolutely peaceful when Ervin managed to conclude his preliminary research through your ideas he got from your web pages. It's not at all simplistic to simply be freely giving hints other people could have been selling. We a

links of london sale

Thanks a lot for providing individuals with a very pleasant opportunity to check tips from this site. It can be so pleasurable plus stuffed with amusement for me personally and my office peers to visit your site particularly thrice weekly to read the late

yeezy boost 350

Thanks a lot for giving everyone such a terrific chance to read critical reviews from this web site. It's usually very excellent and as well , packed with a lot of fun for me personally and my office friends to search the blog at least three times in a we

Adidas Originals NMD X Yeezy 350 Boost Mens Runnin

I simply wanted to make a simple remark in order to say thanks to you for these great information you are giving on this site. My long internet lookup has finally been rewarded with pleasant information to exchange with my partners. I would point out that

yeezy

I have to get across my love for your kindness for persons that really want help with the issue. Your special dedication to passing the solution all over appeared to be extraordinarily beneficial and has in most cases allowed professionals just like me to

nike air force

I must show my love for your generosity supporting those people that really want help on this particular situation. Your personal dedication to getting the solution all around ended up being exceptionally functional and has truly allowed employees much li

yeezy shoes

A lot of thanks for all of the labor on this web page. My daughter delights in getting into investigation and it is simple to grasp why. My partner and i notice all concerning the lively tactic you render simple steps by means of the web blog and welcome

kate spade outlet

A lot of thanks for all your valuable efforts on this web page. Kim take interest in going through research and it's really obvious why. My spouse and i hear all relating to the compelling method you offer worthwhile strategies on the blog and even invigo

lebron 15

I wish to express my respect for your generosity in support of men and women that really want guidance on this topic. Your personal commitment to passing the message throughout had been unbelievably productive and have continuously enabled guys much like

yeezy boost 350

I wanted to draft you the very small remark to finally thank you very much yet again on the marvelous thoughts you have provided on this page. It was so particularly generous with you to make unhampered just what some people could have marketed as an elec

nike air force 1

I have to express thanks to this writer for rescuing me from such a incident. Because of exploring through the world-wide-web and finding solutions which are not productive, I was thinking my life was done. Being alive minus the approaches to the problem

adidas nmd r1

I wish to show my appreciation for your kindness supporting people that should have help with your issue. Your special dedication to passing the message all over came to be extremely important and has usually allowed those much like me to attain their amb

adidas yeezy

I definitely wanted to develop a word to thank you for some of the nice tricks you are sharing on this site. My extensive internet look up has at the end been rewarded with reasonable strategies to share with my family members. I would suppose that most

ferragamo belt

I want to voice my appreciation for your kind-heartedness in support of persons who actually need help on your niche. Your special commitment to passing the solution along appeared to be certainly invaluable and has constantly enabled most people like me

fitflops

I have to show some thanks to you for rescuing me from this particular scenario. Because of researching throughout the search engines and getting basics which are not beneficial, I assumed my life was done. Being alive without the solutions to the difficu

adidas ultra boost

Thanks a lot for giving everyone an extraordinarily splendid possiblity to check tips from this web site. It's usually so beneficial and as well , packed with a great time for me and my office peers to search your blog at minimum thrice in 7 days to read

adidas nmd

I intended to compose you that tiny observation so as to give thanks once again considering the spectacular suggestions you've documented on this site. It was simply remarkably generous with people like you in giving openly what exactly most of us might h

lebron 15

My spouse and i ended up being cheerful that Louis managed to finish off his basic research by way of the precious recommendations he obtained from your weblog. It is now and again perplexing to just find yourself offering facts that many people today mi

links of london outlet store

I precisely wanted to thank you so much once more. I am not sure what I would have used in the absence of the actual information contributed by you about this problem. Entirely was a challenging crisis in my position, but finding out a new expert way you

Adidas NMD Women Imitation Fur Light Purple&Raw Pi

I wish to show my respect for your kindness giving support to all those that really need help on this situation. Your real dedication to passing the message around appeared to be surprisingly insightful and has all the time made men and women much like me

adidas ultra boost

My husband and i felt contented Emmanuel managed to finish off his investigations via the precious recommendations he had using your site. It is now and again perplexing to just possibly be releasing hints which usually some others may have been selling

lacoste outlet

My wife and i got very satisfied Emmanuel managed to finish off his research by way of the ideas he acquired out of the weblog. It is now and again perplexing just to possibly be making a gift of steps that men and women may have been making money from.

golden goose

Needed to put you one bit of remark to finally say thank you over again regarding the lovely knowledge you've contributed here. It's shockingly generous of people like you to deliver unhampered all some people could have offered for sale as an electronic

adidas yeezy

I am only writing to let you know of the superb discovery my friend's daughter undergone studying your blog. She learned so many pieces, which include what it's like to possess an amazing helping nature to have other people smoothly fully understand sever

lebron james shoes

I wish to show thanks to you just for rescuing me from such a setting. Right after scouting throughout the world-wide-web and seeing concepts that were not beneficial, I believed my life was over. Living minus the strategies to the problems you have sort

pandora charms

My spouse and i got so glad that Chris managed to finish off his inquiry through the entire precious recommendations he had out of the weblog. It is now and again perplexing just to choose to be freely giving thoughts which usually men and women could hav

adidas nmd runner

Thank you a lot for providing individuals with an exceptionally terrific possiblity to read critical reviews from this website. It's usually so pleasing and also packed with a lot of fun for me and my office acquaintances to visit your blog at least 3 tim

Write something about this article:



Money Blitz Word of the Day

Donation - Money (or occasionally goods) given voluntarily, not usually intended to provide any specific benefit in return. Often applied to individual "donors".

Money Blitz Quote of the Day

Nobody can do everything, but everyone can do something. -Author Unknown

WatchList Quote

Major Index WatchList

EUR & USD Interactive Chart