The Venture Capital Crash

Venture capital funding shrank in 2008 — particularly in Q4.

During Q408, VCs raised $3.4 billion — down by 33% from Q3’08 and by more than half of the $8 billion they raised during the same quarter in 2007.

Some 211 funds raised $27.9 billion in 2008. That’s 21% less than the $35.5 billion venture capitalists raised in 2007, says Thomson Reuters.

With less money coming in, VCs are investing less, too. VentureSource says VCs invested $5.5 billion in 554 deals during Q4’08 — 30% less than the $7.9 billion they invested in 718 deals in Q4’07.

Here’s the thing: While the miserable global economy probably plays the starring role in venture capital’s sudden bust, another big problem for the suits that are supposed to seed our next great startups is that on the aggregate, they haven’t been earning much return for their investors in quite some time.

We recently read in Forbes that since 2000, venture capital funds have posted an annual return of about -1% and that the venture industry hasn’t returned more money than it’s invested for 11 years. Since 1976, the median return for all venture funds is just 5%.

See Also:
The 20 VC Firms Most Exposed To Web 2.0

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