Moneytree statistics posted on the National Venture Capital Association website paint a potentially troublesome picture for the venture industry. In recent years, VC investment into portfolio companies has far outpaced the inflow of limited partner investments into venture funds. On a year-to-date basis through Sept. 30. 2011, VC investments in portfolio companies totaled $21.2 billion compared to VC fundraising of just $12.2 billion. Anyone with a working knowledge of arithmetic can see that this situation isn’t sustainable.
Based on my discussions with university endowments and pension funds over the last couple of years, the story behind the numbers raises additional concerns. While most limited partners are still clamoring to invest in the top 10 percent of venture capital funds based on performance, the picture for the bottom 90 percent isn’t so clear. Many venture capitalists are not looking forward to the process of raising their next fund and are waiting for a few more successful exits in their portfolios to improve their chances.
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