Photo credit: Tracy O/flickr
The number of venture capital firms that are still active continued a slow but steady decline in 2010 with no sign of improvement.
According to VentureSource, 844 venture capital firms completed at least one transaction in 2011, down from 886 the previous year and down significantly from the high water mark of 1,312 during the dot-com bubble in 2000. Analysts point to one reason for this slow decline to be a residual effect of the dot-com bubble burst and the fact venture capital firms often employ funds with lives of a decade or more.
Another reason is that the venture capital industry has been struggling overall. Apart from venture capital firms with hot companies in their portfolios such as Groupon and Facebook, the industry has fallen on hard times. According to the VentureSource analysis, the 10-year benchmark return for venture capital funds closed out 2010 at negative 1.98%. Unsurprisingly, only those venture capital companies with hot companies in their portfolios had appreciable success in raising funds in recent times.
In addition, upwards of 30 percent of active venture capital firms didn’t make any new investments in 2010, instead plowing funds into companies they backed previously. This is an indication that their sources of funds are drying up and won’t be there once they exit from their current companies. All of these factors indicate the numbers of venture capital firms will continue to shrink in 2011, and may drop below 800 for the first time since the late 1990s.
Castlight Health Tops Venture-Funded Companies
Despite some of the doom and gloom surrounding the venture capital industry in general, it is still funding many successful startup companies. Recently the Wall Street Journal spotlighted the top 50 venture-funded startup companies for 2011.
Topping the list is the San Francisco-based Castlight Health Inc., a company whose software product allows consumers to itemize out-of-pocket health costs. The company, which was number 14 on the 2010 list, was founded in 2008 as Ventana Health Services Inc. It took over the top spot from Pacific Biosciences Inc., a genetic sequencing technology company which went public last fall.
Tech companies also placed strong on the list. Coming in at number two and three respectively were Xirrus Inc., and Xactly Corp. Xirrus is an enterprise wi-fi systems firm co-founded by Dirk Gates, who sold a previous startup to Intel, while Xactly produces web-based software for managing sales compensation. Xactly currently works in conjunction with heavy hitters such as Microsoft and Oracle.
Rounding out the top five on the WSJ list are the New York-based Recycle Rewards Inc., and ExteNet Systems Inc., based out of suburban Chicago and backed by venture capital firms. Recycle Rewards works with cities to encourage recycling in 29 states and internationally while ExteNet provides network infrastructure for wireless service providers. ExteNet recently raised $128 million in conjunction with George Soros’ investment firm.
