What the VC Industry Upheaval Means For Startups


The National Venture Capital Association yesterday issued a report card of sorts for the venture industry, and the results were pretty middle-of-the-road. The organization, working with research firm Cambridge Associates, noted that venture returns were still higher than the returns for the stock market over the near and long term, but were falling lower than returns generated 15 and 20 years ago.

The observation helps drive home the argument that the VC industry needs to manage a lot less cash if it wants to keep generating outsized returns. For startups looking for cash, such upheaval after 10 years of VC largess is going to change who gets funded and how much they get.

What The NVCA Data Means

Aside from feel-good data generated about job growth, investments and company formation, the NVCA releases returns data (presented below). That’s the report card that counts, because these numbers are the standard used by the limited partners who give VCs their money. The 10-year figure measuring performance over the last decade — which includes funds raised in the 1999-2001 time frame that precipitated the dot-com crash — has dropped by half in the last quarter. Sure, venture capital is still performing better than the major stock indices, but it certainly has fallen off from the days when companies like Intel and Compaq were built.


The report card has disappointed the industry. Mark Heesen, president of the NVCA, said in a statement, “Without a stronger IPO market, and by stronger I am suggesting a multiple of 8 to 10 times the current volume, these longer term performance numbers will continue to deteriorate over the next few years. Venture capital may still outperform the other major market indices, but by far less than the industry did in the last decade.”

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16 Comments Subscribers to comment
  1. unable to see the charts…

    1. Charts fixed.

  2. Marty Rozmanith Saturday, October 31, 2009

    VC funded startups have always been a small percentage of new business starts – something less than 1%. At 1,910 deals for the WHOLE YEAR, is the VC industry still relevant at all? Who are they funding? Certainly none of my businesses…

  3. AMIR BANIFATEMI Wednesday, October 28, 2009

    There is one factor that may have been included which is the track record of entrepreneurs, sometimes creating strange valuations from the VC community.

    Another factor is the market (and investor community) appetite for fast growth. Recent examples (Facebook, iPhone, Twitter, and more to come) leaves the door open for more hope…

    Finally, the disturbance in VC industry , beyond the recent economic and market disruption, may provide signs to entrepreneurs that have to ability to adjust, as you pointed out.

  4. Great Catch Derek. Apologies on our oversight.

  5. From page 3:

    “But 2 percent on $100 million fund is $2 million while on a $1 billion fund its $200 million.”

    Should read $20M.

    1. Duly noted and corrected.

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