5 Top Trends in Venture Capital Today

For a quick check on how the US venture capital industry is doing, here are 5 Top Trends:

1. Industry as a Whole: In December of 2009 the US Venture Capital industry’s 10-year returns turned negative (Q4’99 – Q4’09).  The third quarter of 2010 reported 10-year returns of -4.6%.[i] In the year ending June 30, 2010, the US Venture Capital Index returned 6.38%, which was lower than Barclay’s government and corporate bond index (9.65%).  In the same time frame, the Dow Jones Industrial Average returned 18.94%, the S&P 500 returned 14.43% and the Nasdaq returned 14.94%, making venture capital the lowest performing investment class last year amongst such peers.[ii]

Bottom Line – The VC industry is still struggling with a tough decade of poor aggregate returns.

2.  Fundraising by VC Firms: VCs raised more than $7 billion in the first quarter of 2011.  That’s a 76% increase in dollar commitments from the same time last year and  the best annual start since 2001!  While most dollars are still being given to follow-on funds rather than new VC funds (2:1 ratio in the first quarter of 2011), in 2010 there was overall growth in the number of new funds receiving capital.[iii] This should be welcome news for old and new funds alike.

Bottom Line – It’s finally getting easier for VCs to raise money (even for new funds).

3. Areas of VC Investment: Top areas of VC investment in 2010 were software (18% of all deals), biotech (17%), clean tech (17%) and medical devices/equipment (10%).  The lowest areas of investment included computers and peripherals (2%), electronics/instrumentation (2%), financial services (2%), retailing/distribution (1%) and healthcare services (1%).

Bottom Line – VCs are targeting some industries far more than others.

4.  VC Deal Flow: In 2010 VCs started doing more deals and spending more money.  The average deal size rose to $6.7 million.[iv]

Bottom Line Venture capital markets are finally loosening up again.

5.  VC Exits: The total number of VC-backed exits soared upward in 2010 with 72 IPOs and 427 M&A transactions.  The average VC-backed M&A transaction in 2010 was $150 million.[v]

Bottom Line – VC exit markets are coming back to life.

[i] Cambridge Associates LLC/National Venture Capital Association

[ii]Cambridge Associations LLC, U.S. Venture Capital Index And Benchmark Statistics; Non-Marketable Alternative Assets, June 30, 2010

[iii] Thomson Reuters/National Venture Capital Association, Venture Capital Industry Raises $7.1 Billion In Q1 2011; Strongest Annual Start For Fundraising Dollars Since 2001, April 11, 2011

[iv] PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data:  Thomson Reuters

[v] National Venture Capital Association Yearbook 2011

This Post Has 10 Comments

  1. Tan Q.

    Good update data information. Thank you for sharing.

  2. Sandy Y.

    Great to the point synopsis of what’s going on without a bunch of irrelevant clutter. Glad to see the VC economy is finally lifting.

  3. Jonathan

    It is still hard to get VC funding for seed stage companies like mine but nice that things are getting closer overall. With luck it will be a rising tide.

  4. Erich Flynn

    Great Information. Thanks for providing the information and the references. Greatly appreciated.

  5. Chris

    I just completed my MBA in Ontario and we had speaker after speaker tell us that VC is dead in North America. Thanks for the great public resource!

  6. AlvarezSummer21

    I had got a dream to make my own company, however I did not have got enough amount of cash to do this. Thank heaven my close fellow said to take the mortgage loans. Therefore I received the financial loan and realized my desire.

  7. Thank you very much for the detailed list. this is what I needed for my thesis. forward to the next review

  8. Venture capital is the most important in our time. 5 and all these trends have long been studied by researchers in this issue

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