VC investment down but not out

Sarah Lacy had a good post on Techcrunch on Friday: Venture Capital Down 50%.  It’s Not Just the Recession, Folks.  The charts below tell the story.

That is a pretty depressing picture, but then again we are in the middle of the worst recession that most of us can remember.

I would also offer two rays of hope for those of us based in Europe. 

The first is that these are US stats and whilst in most respects our market over here is subject to the same pressures as they have on the other side of the pond, in one important respect we are different.  Venture capital (along with alternative asset classes) is subject to two independent cycles, the macroeconomic cycle that effects everyone and a venture specific asset cycle which moves with its own rhythm as following periods of too little money in the market and great returns too much money comes into the market chasing returns down and forcing money out of the market before it all repeats again.  The venture industry in the US is experiencing a double whammy of both the macro cycle and the asset cycle being on a downswing at the same time.  Here in Europe the asset cycle is at a low point, so we the only negative factor we have to deal with is the macro cycle. (In fact the asset cycle is at a sufficiently low ebb that the British government is thinking of lending support from public coffers.)

The second ray of hope is that there is still a lot of investment happening.  A 50% contraction is a lot for any market to deal with but it is easy to forget that there are a lot of deals still getting done.  Moreover this is just a cycle and things will start picking up again.  In Europe I think this will follow the macro cycle and I am starting to get hopeful that we are nearing the bottom.