Winter is coming to early stage venture

Dow Jones VentureSource just released their Q3 quarterly findings and yesterday we wrote a blog looking at annual trends in new VC funds raised and VC funds invested.  There were some interesting observations, for instance: average new fund size is down 25% to $71mm from $95mm and VC funds invested declined for the second straight year in row, down to $63bln from $76bln two years prior. But, one major trend we neglected to highlight has far greater ramifications for long term venture investing: VC funds are not coming close to re-filling their coffers.  Since Q3 2014 VC have deployed $215bln but over that same time have only raised $129bln.  That means the amount of capital available for new venture deals 2 to 5 years out will be substantially lower. 

 

The data presented annually on a last twelve months basis is below.

 

VC FUNDS RAISED LTM Q3 2015 LTM Q3 2016 LTM Q3 2017
Amount Raised ($mm) $37,850 $43,500 $41,110
       
VC FUNDS DEPLOYED LTM Q3 2015 LTM Q3 2016 LTM Q3 2017
Deals Done ($mm) $75,700 $65,310 $62,560
       
VC Raised/VC Deployed 50% 67% 66%

 

While corporate investors like GE’s venture arm and large non-venture institutions like Fidelity can help make up any shortfall in later stage deals, they generally don’t invest in early stage deals.  Crowdfunding can help fill the gap at the early stage, but that’s likely no more than $1bln to $2bln annually.  If the difference between US VC funds raised and US VC funds deployed doesn’t shrink soon, the early stage could be looking at a vastly tighter funding environment.       

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