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What’s Happening to Venture Capital in the Recession

Scott Shane

(Small Business Trends)

What’s Happening to Venture Capital in the Recession

Jun 15, 2009 -

The National Venture Capital Association (NVCA) just released their first quarter statistics and the numbers are downright shocking.  In the first quarter of 2009, there were only 549 venture capital deals in the country.  We have to go all the way back to 1995 to find a first quarter where there were fewer venture capital deals.

In fact, as the chart below shows, the number of VC deals done in the first quarter of 2009 was just over a quarter the number done in the first quarter of the bubble year of 2000.

The Number of Venture Capital Deals Done in the First Quarter, 1995-2009. 

Source: Compiled from data downloaded from National Venture Capital Association.

The numbers for the amount invested aren’t much better.  VC’s invested just over $3 billion in the first quarter of 2009.  In real terms that’s less than the amount invested in the first quarter of 1996 when VC’s invested $2.3 billion ($3.15 billion in today’s dollars).

In real terms, the first quarter 2009 investment of $3 billion was 8.7 percent of the amount invested in the first quarter of 2000 (when $34.46 billion was invested in today’s dollars.)

If all of this isn’t bad enough, consider the number of companies that received venture capital for the first time in the first quarter of 2009.  Only 132 companies; the lowest number since, well you guessed it, 1995.

With the IPO market almost non-existent in 2008 and acquisition activity down, venture capitalists were having a hard time exiting their investments.   So they probably figured that financing a whole new crop of companies wasn’t the most prudent strategy, and so they cut back on their investments.

Now, along with everything else, venture capital backed start-up activity is waiting for the recovery.

* * * * *

About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

Tags: scott shane, venture capital

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