More Venture Capital Trends

venture capital trends

Following my recent article titled, “The Venture Capital Industry is Still Rightsizing,” this week let’s turn to venture capital trends and commitments and the number of companies financed.

2016 Venture Capital Trends

Figure 1 shows venture capital commitments — the amount of money that the industry has invested in startup companies measured in inflation-adjusted dollars — from 1980 to 2014. The dotted line in the figure is the five-year moving average.

venture capital trends

Since the venture capital bubble burst in 2001, the trend in venture capital commitments has been largely downward, with a slight rise in the pre-financial crisis period. The most recent year data are available, 2014, shows an uptick, reversing the downward trend in the moving average.

Overall, the pattern for venture capital commitments is consistent with the story of continued rightsizing in the industry that I described in my earlier post. While not nearly as consistent as the patterns for capital under management, the number of VC funds and average fund size, inflation-adjusted venture capital commitments in the wake of the Internet 1.0 bubble have trended back towards their levels in the 1990s.

Figure 2 looks at the number of businesses that venture capitalists finance every year. Here two different measures are included in the same chart. The blue bars represent the number of companies that received venture capital financing for the first time, while the red lines show the number of companies that received any funding from venture capital firms, whether a first or follow-on financing.

venture capital trends

Small Business Deals

As you can see from the chart, the number of companies backed by venture capitalists was relatively stable through the 1980s and early 1990s. Then in the second half of the 1990s, it accelerated dramatically, peaking with the Internet 1.0 bubble in 2000.

But unlike the patterns for venture capital commitments or the other measures that I described in my previous article, the post-2000 venture capital trend for the number of companies receiving venture capital backing seems to have flattened out at a higher level than in the 1990s.

The blue and red dotted lines, which show the five-year moving average for the number of companies that have received initial and any venture capital financing, respectively, appear to be flat. Moreover, in 2014, the number of businesses receiving venture capital financing was more than double the number in 1995, while the number of companies receiving initial venture capital financing is more than 50 percent higher.

Venture Capital photo via Shutterstock

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

One Reaction
  1. That spike in 2000 was insane! Any way we’ll ever see a bubble like that again?