Venture capital firms are having their own problems raising new money from limited partners. Capital inflows in the first quarter were down 31 percent annually to $3.6 billion in the U.S., according to the National Venture Capital Association. Venture funds were also down 11 percent from the fourth quarter.
Only 32 funds were able to raise money in the first quarter, down from 44 last quarter and 57 a year ago. Only 5 new funds were launched, with the vast majority of the money going to established funds, including Battery Ventures and Oak Investment Partners. Both raised new $750 million funds.
The average amount raised per fund was $113 million, up from $93 million the previous quarter. Until exits pick up again, investors will remain cautious on venture capital as an asset class.
It’s not just that investors are waiting for IPOs to make a comeback and everything will be fine. The entire VC industry is being turned on its head right now as startups, at least Web startups, require less and less capital to get a product out the door. So what is happening is that VCs are fighting to get a tiny piece of seed rounds that are less than $1 million or pushing up valuations for hot companies like Foursquare just to get a seat at the table.
What will it take to make venture funds more attractive again?