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Summary:

[qi:101] Venture capital firms convinced limited partners to hand over $1.7 billion to 25 funds during the second quarter of this year — the smallest dollar amount raised by VCs in a single quarter since 2003, according to data released today by the National Venture Capital […]

[qi:101] Venture capital firms convinced limited partners to hand over $1.7 billion to 25 funds during the second quarter of this year — the smallest dollar amount raised by VCs in a single quarter since 2003, according to data released today by the National Venture Capital Association. It also marked the smallest number of new venture funds formed in a quarterly period since 1996. OK, so fundraising by venture firms is down, which makes sense given the lousy exit environments, stagnant returns and the worries that the VC model is broken. Limited partners also have less money to allocate to venture capital as they see their own portfolios take a hit. So in looking at this data I’m wondering if we’re merely looking at the actions of cash-strapped limited partners or a realignment in the venture industry.

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  1. >>So in looking at this data I’m wondering if we’re merely looking at the actions of cash-strapped limited partners or a realignment in the venture industry.

    I think it’s a confluence of 3 things: liquidation crisis in limiteds; 10-year returns going negative for this asset class; basically NO exit market (IPO, M&A) for the foreseeable future.

    http://kipmcc.wordpress.com/2009/03/19/venture-capital-in-2009/

  2. *

    IMO what the VC industry needs is more entrepreneurs becoming General Partner VC’s. There are a few exceptions out there like (Union Square Ventures). But, entrepreneurs need entrepreneurs who understand what it takes to build companies and the daily grind required. LP’s should be requiring new funds have people who understand how to build a business. Furthermore, if the LP’s want cute glossy quarterly financial report the new Entrepreneur VC can outsource it to a MBA grad.

    **

    Overcoming step one if difficult. That is because the managers of the endowments etc. are also MBA’s. These MBA’s were roommates of the same MBA’s who are now GP’s at VC firms.

    ***

    So how do you resolve this issue:

    You look at the IRR of the venture funds and anything below industry average (which is over 80% of VC funds) requires that the endowment manager fire his VC buddy. This is followed by the board of trustees of the endowment firing the endowment manager for being a moron.

    ****

    Next you lower management fees across the board. I find it ridiculous that a $200M fund can charge 2% yearly management fee with two GP’s, 1 Principal, 2 Analysts and 1 receptionist acting as a gatekeeper. I have yet, to see any VC firm justify a $4 million yearly cash management fee. If there is a VC of there with enough “huevos” please post your justification. If a VC is that good then increase ther carry and reduce the cash mgnt fee to 1/2 point. Ah, challenging the status quo.

    *****

    Old school VC’s RIP!

  3. VC Funding Heading Back to Pre-Bubble Levels Monday, July 20, 2009

    [...] half of the year are a sign of a dismal exit environment and the economic malaise, and may also represent a permanent shrinking of the industry that several experts have called for in the last nine months. Judging by the types [...]

  4. 2010 Will See Some Venture Firms Fold – GigaOM Monday, January 11, 2010

    [...] 2010 Will See Some Venture Firms Fold By Stacey Higginbotham Jan. 11, 2010, 7:46am No Comments 0 0 0 0 Venture fundraising is off by 47 percent this year, as the general partners decided not to tap pension funds for more money while those limited partners were feeling the crunch of a crappy economy — and because the venture funds themselves often had little to show after years of lame exits. It’s kind of like a teenager who doesn’t want to bug his laid-off mom for an allowance, especially since he hasn’t been performing well in school. [...]

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