Venture Capital Trends, Q1 (2008)

Posted on August 18, 2008


Over the last couple of weeks, I’ve been intending to comment on the recent report released by VCExperts released in June regarding trends in venture funding in Q1, 2008. The graph below illustrates some of the key data from the report. The labels of A, B, etc. refer to the Series Round of Financing.

While recent trends in Series A-D financing have moved around a bit and returned to the same approximate levels from 2006, it’s clear that the number of Series E+ fundings are rising over the past year. This may be manifesting a couple of market factors, including the current market constraint of two major VC-funded exit strategies – acquistions and IPOs.

Given the overall volatility of the stock market, perhaps potential suitors are sitting on the sidelines and taking an inward focus to developing operational strength and cash flow rather than seek growth through acquisition. Stock market volatility also appears to affect the number of IPOs filings, with only 13 IPOs filed in Q2, 2008 compared with 56 filed in Q2, 2007 (sourced from the Hoovers IPO Scorecard). Renaissance Capital’s IPO Index is showing a -5.2% return over the past 1-year period, with year-to-date returns at -17.8%. It’s just not a great time for IPO exits if you’re a VC-funded company. (Of course, the DJIA is at about -10% YTD and the NASDAQ is about even so far YTD…)

In December 2007, a National Venture Capital Association (NVCA) press release reflected some bullish sentiments by venture capitalists, with “59 percent of the venture capitalists are predicting further IPO market recovery.” I found this optimism particularly interesting given the counterview outlook illustrated by the USF Venture Capital Confidence Index. The most recent update released on July 9, indicates that VC confidence has fallen to an all-time low since establishing the index in 2004. Wish these VCs could make up their mind….

One factor in this trending may be the ongoing movement of venture capital. Data from PWCMoneyTree provides sufficient evidence that venture capital is falling into later stage investments over the long run, as discussed in an article back in March.

I’m guessing the truth is somewhere in between…