Fundraising by US venture funds is falling fast

By October 11, 2011Venture Capital

Q3 fundraising data up on Geekwire yesterday paints a gloomy picture for the startup industry.  You can see from the chart below that the amount raised by US funds in the quarter just closed fell precipitously.  You can also see that the data set is pretty volatile and there is therefore a possibility that fundraising bounces back in Q4, but the overall trend is clearly downwards, and excepting Q1 this year it seems the industry has been slowly rightsizing for some time now.

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Despite this backdrop VCs have been enjoying some good success recently, most notably of course with Facebook, but there are many other examples on both sides of the pond, including our own run of exits.  This success has fed through to VCs paying higher valuations to invest in startups, and many of us have been wondering how long that will continue given the poor macro-economic picture. 

The most obvious catalyst for change is a decline in exit markets, in the first instance driven by weakening appetite for IPOs.  The other catalyst is a decline in the amount of money VCs have available to invest.  However, the volume of new funds raised in any given quarter will on average represent around 10% of the funds in the market, so there won’t be an effect on valuations unless this trend continues for a couple of quarters.

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