This is becoming an almost annual post I guess. Venturebeat and a couple other blogs are commenting on NVCA numbers out of the US where it's clear venture investing plummeted in 2009. Is anyone surprised? This was clearly discussed as inevitable at the beginning of the year. Yes, the industry is contracting (as well as evolving). Am I surprised? No, there simply was too much money chasing too few deals. In Europe, the decline is probably steeper but I do not have exact numbers to compare.
Yet, we're all still here. We're doing deals and our dealflow has significantly become better in the past 6 months. Fundraising will remain difficult for VC's throughout this year and into next. Many players and even funds will disappear. This has happened many times in the past. After each dip new players evolve and the best continue to thrive. As I've written before, we're going to see more super-angel funds and angel investing in general. It takes so little to launch start-ups nowadays (just look how quickly 5 clones of Groupon appeared in Germany). You don't need $500 million funds for those types of investments. Here I point to initiatives like Seedcamp.
Mark and I had a short back and forth on the fact that we prefer being where few VC's are. In Germany, you definitely have very few early stage investors. That makes for good investing if you manage to survive and source the best deals. Mark's in L.A. where you also don't often hear of too many players. Generally, this trend of less VC's is good. It'll lead to fewer deals but usually quality goes up.
It's going to hurt for the VC's. The hurt is going to get worse too before it gets better. I'm hearing lots of news about partners bailing out (or being politely nudged out) already. Fundraising efforts are being stopped mid-cycle. Lots of funds are basically running on fumes. Yet, like them or not, look what the Samwers are able to do in Europe. They're not playing "by the rules" and soon, lots of VC's will have to figure this out as well or risk quickly becoming irrelevant. (Note, when I refer to "playing by the rules", I mean the rules of venture capital as it's existed for the past 30 years. Doing illegal crap doesn't count!)