As private equity firms seem to be engaged in a game of “Can You Top This” in announcing ever-bigger funds, the venture capital industry experienced a 13% drop in the third quarter, and that’s a good thing. “At a time when there is a great deal of discussion about whether there is too much money entering private equity,” says Mark Heesen of the National Venture Capital Association, “this quarter’s lower fundraising levels, particularly on the venture capital side, are both expected and welcome.” Welcome, he says, because it means the industry is nearing the end of a three-year fundraising cycle during which it will have attracted about $75 billion “and are now actively investment with a five to seven-year horizon in mind.” “What we’re seeing is a shift...to IPOs as a fund-raising event more than a liquidity event,” VentureOne Research Manager Jessica Canning told Venture Wire. The third quarter fund-raising figure of $4.9 billion, according to Thomson Financial and the NVCA, follows a record-breaking Q2 when $13.4 billion flowed into venture capital, and is the smallest amount raised since the $3.3 billion in the second quarter of 2004. The fact that the money has dropped off may indicate venture capitalists may have learned from mistakes of the past – namely from the dot-com era when VCs suffered severe losses after the tech boom busted. Of the $4.9 billion raised, early-stage VC funds collected $3.5 billion of it. Meanwhile, the new MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association indicates venture capital investments dropped 8% in the third quarter from the second quarter to $6.2 billion.
