The venture capital industry is getting hit hard by the domino-effect of the turbulent economy and unpredictable market.A total of 52 venture capital firms raised a combined $1.72 billion in the third quarter, according a new report out from Thomson Reuters and the National Venture Capital Association. The total is the lowest accumulation of funds since 2003; it is also a 52% drop from the third quarter of 2010 – which saw 53 firms raise $3.6 billion.
Part of the reason for the decline can be sourced to the bad IPO market. The weak economy is impeding the ability of venture capital-backed companies to go public, meaning less returns to venture capital investors. Most notably – Groupon delayed its IPO last month.
The San Jose Mercury News points out that only 18 companies went public this past quarter. Of the 18, five were venture capital-backed companies.
This also has ramifications for the economy as a whole, the Mercury News notes:
The answer could have implications far beyond the rarefied air of startups and venture capital, because successful IPOs typically have a broad ripple effect. Silicon Valley restaurateurs, landscapers and car salesmen stand to reap the bounty if a host of new companies make it to the public markets, lining the pockets of their employees along the way thanks to rising share prices.
Venture capital companies are considered a lifeline for American start-up industry, providing the monetary catalyst for many small projects to get off their feet. Now-famous companies had venture capital banking include Facebook, Twitter, Google and many more.
But it’s not just the startups that should be worrying.