National Dialogue on Entrepreneurship summarizes several reports issued by the National Venture Capital Association (The full reports are available as pdf files at the NVCA site under “Industry Stats and News”. Click on the July 27, August 3 and August 9 links).
VCs were increasingly busy investing early stage deals, which means that they are more optimistic going forward. When the economy is poor, VCs focus on later stage deals that have a more proven track record. In Q2 of 2004 VC investment in later stage deals is flat. Where was there money going instead? To early stage deals that have more risk, but more potential return if economic times are thought to be positive going forward. VCs are bullish!
There was also increasing M&A activity for VCs. By liquidating more of their current investments, VCs have more cash to put into early stage ventures. Success with realizing gains from current investments will also attract more new money into their funds, or support the creation of new funds. So not only are VCs bullish, they will have pockets full of cash ready to fund more and more deals.
“All of the data point to continued good news in the VC world. First, VC investments in Q2 2004 reached $5.6 billion, continuing the growth pattern of the past two years. VC firms backed 761 companies—with roughly 30% of them in the early growth stage—during this period. Fundraising by VC funds has been stable, with much of the Q2 2004 fundraising focused on new funds that plan to back early stage companies. Finally, VCs may soon be enjoying the opportunity to exit from some of their earlier investments. Merger and acquisition activity grew again in Q2 2004, marking the fifth straight quarter of growth in the number of firms acquired.”
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