Venture capitalists expect their industry to shrink

You might have seen this graphic on Techcrunch last week.  It shows that VCs in the developed world expect their industry to shrink over the next five years.

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The most dramatic rate of decline is expected in the US, but the picture in Europe is not much better, and crucially the industry over here is already too small.  The history of venture in Europe is one of rapid expansion from almost nothing to something like 3-4x the current industry size in the bubble, followed by an extended period of contraction which still hasn’t ended, and if this chart is right has another five years to go.

In the US the venture industry is still arguably over capacity, but in Europe it is hard to say that is the case and I am hopeful that over here at least the venture industry will do better than predicted in this survey (broad opinion surveys like this often lag turns in the market).  I think there is a good chance that 2010 will prove to be a great vintage year for investment, and that within the next five years the current crop of European funds will be showing sufficiently good results that the limited partners who provide the money to VC firms will be looking to increase their allocation to this market.