Wednesday, September 19, 2007

Venture Capital Consolidation Reflects Benefits of Shakeout

"The number of active venture capital firms — those making at least one new investment within the course of a year — has plunged nearly 50% in a six-year period.

"The shakeout among venture capital firms is much more profound than people realize," a managing partner at OVP Venture Partners, Gerry Langeler, said.

Using data compiled by Pricewaterhouse Coopers, Mr. Langeler found that in 2000, there were 1,156 different venture firms that made at least one new deal. In 2006, there were only 597, a 48% drop.

At the same time that VC firms have dropped in number, their returns have improved. The five-year trailing returns were just 2.7%, while the three-year trailing returns were 9.6%, while returns over the last 12 months were up 18.1%, according to data from the National Venture Capital Association. The historic norm for VC returns is around 20%, although after seeing historical highs in the 1990s, the industry hit a low following the technology sector bust in 2000."

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