More than a few commentators have referred to the 2000s as a “lost decade” for venture capital. Now that we have closed the book on the past 10 years of venture investments, the numbers show it’s still a pretty discouraging scene out there for venture-backed companies.
Venture capitalists invested about $806 million in companies in the Northwest during 2010, according to the MoneyTree Report by PwC and the National Venture Capital Association, based on data from Thomson Reuters. That actually looks pretty good when compared to the prior year, since about $727 million was invested in the region then, meaning we saw a reasonably healthy 10.8 percent annual uptick.
But if you look further back over a decade of numbers, last year’s financing haul only represents about half the money that flowed into VC-backed companies back in 2007, when once august institutions like Lehman, Merrill, AIG, Fannie and Freddie started making people think about stashing cash under the couch cushions. The national picture for venture investing still hasn’t completely recovered, but it is at least on the upswing for the first time since 2007. VCs pumped $21.8 billion into startup companies nationwide last year, a 19 percent increase over the prior year, according to the MoneyTree Report.
OVP Venture Partners’ Gerry Langeler—one of the folks who has referred to the 2000s as the “lost decade” for venture capital—said in a conference call with reporters yesterday that 2010 was “an average year” and that the current environment is “fairly normal.”
Carl Weissman, one of Langeler’s partners at OVP, said he thinks the venture financing trend has bottomed out, but probably won’t really start to pick up until 2012. Two things need to happen first, he says. One is that the limited partners who invest in venture capital—think big state pension funds—need to see positive returns in the overall public markets that make their allocation for venture capital look small when compared to, say, real estate, or blue-chip stocks. The second thing is that VC funds need to show evidence they can generate returns, through IPOs or acquisitions. Those are the factors that could enable VCs to raise new funds, and start investing more locally. “We need to see some exits,” Weissman says.
In the meantime, entrepreneurs who want to start new companies are going to have it tough, Weissman says. Existing portfolio companies should be OK as long as they continue to hit their milestones, since most VC firms have set aside funds to carry those companies forward when they hit their goals, he says.
It all adds up to a pretty lean picture, especially when you think about who is willing and able to back the next big ideas springing from research labs. I cobbled together a little table below, based on the MoneyTree Report figures, so you can see for yourself how far the sector has tailed off since the financial crisis of 2008.
| Year | Venture Investment in Northwest Companies | |
| 2010 | $806,321,300 | |
| 2009 | $727,437,100 | |
| 2008 | $1,062,963,600 | |
| 2007 | $1,568,248,500 | |
| 2006 | $1,170,054,000 | |
| 2005 | $958,322,600 | |
| 2004 | $990,241,200 | |
| 2003 | $610,776,600 | |
| 2002 | $717,897,100 | |
| 2001 | $1,276,775,800 |
