The VC market is getting healthy again. VentureWire reported today that $6 Billion of new funds were raised by VC's in Q2 2005 (that's outside investors (Limited Partners) giving money to VC firms so they can invest in startups at some later time). For perspective, $2.5B of this was raised by only 3 firms (Menlo, August Capital, and NorthBridge). This $6B quarterly number puts CY 2005 on pace for VC's raising nearly $25 Billion of capital that they can invest in their respective startup portfolio's.
I don't believe the media does a good job of giving perspective to VC data. So let's give it a shot by comparing how much was raised vs how much the VC's have invested historically in their startup portfolio's.
Reviewing PWC's Money Tree Data we find the following VC funding history (VC's investing in startups) for the last 10 years. In 1995, there was $7 Billion invested. 1996 = $11B; 1997 = $15B; 1998 = $21B; 1999 = $54B (beg of the bubble); 2000 = $105B (bubble); 2001 = $41B (post-bubble); 2002 = $21B; 2003 = $19B; 2004 = $21B; 2005 ~ $25B (estimate). I couldn't get the graph to work out for the X/Y Scale but all you need to know in the picture below is the gridlines are every $20B (Y scale) while each dot represents a year (1995-2005).
In terms of #'s of Companies funded over the last 10 years, the data looks like this.
1995 = 1800
1996 = 2500
1997 = 3100
1998 = 3600
1999 = 5400
2000 = 7800
2001 = 4500
2002 = 3000
2003 = 2900
2004 = 2900
2005 = 3100 (estimate)
Other interesting consistent historical insights from this data:
- 30% of all U.S. VC Backed Companies are funded in Silicon Valley. This grows to 45% if you include all of the West Coast (Southern Cal, Seattle Area, etc)
- Other than the bubble period, 200-250 companies get funded every quarter in Silicon Valley. We are on pace for 900-1000 companies funded in CY 2005. My gut says this is a function of # of VC's and # of partners and time/focus.
- The average investment (dollars / # of companies) per VC funding is a rather tight range of $8.5M-$9.0M per company funded. Again, an average. This compares to pre-bubble funding amounts of $5-$6 million vs the peak bubble days of $16-$17 million per funding. I'm looking for this number to increase over the coming quarters as exits today are more visible and getting bigger faster is once again in vogue.
The data suggests that we are on track for the "old normal" of 1998 (borrowing from and apologies to Roger McNamee's new normal analogy). I remember commenting to a few colleagues last fall (Oct 2004) that it felt to me like the VC industry had really started investing again for the first time in 3 years. Today, it feels like the pace continues to pick up and if the data keeps rolling in like this, the VC market will continue their powerful economic engine of Silicon Valley. VC's fund companies, companies hire people, people buy things from companies, companies buy other companies, companies go public..and so on.
My gut tells me we are going to have a very fun next few years again....stay tuned...
Finally, VentureWire's story as a reference:
venture market summary
By VentureWire Staff Reporters
U.S. venture capital firms raised $6.07 billion in new funds in the second quarter, the largest amount raised in a single quarter since late 2001, according to industry tracker VentureOne. The amount starkly contrasts the $2.3 billion brought in during the second quarter of 2004, and it represents an 80.5% increase from the $3.36 billion raised in the first quarter of 2005.
........The latest second quarter figures are heightened by several large venture firms that closed large-sized funds during the second quarter. Menlo Ventures, closed its tenth fund with $1.2 billion in April, and both August Capital and North Bridge Venture Partners' new funds topped $500 million.