New data published in the annual publication of National Venture Capital Association’s Yearbook brings to light the challenges faced by the venture capital industry in recent years. According to the report, there has been a stunning 60 percent fall in the number of people employed in the venture capital industry during the last ten years. In addition to the sharp decline in workforce, the size of the venture capital industry in itself suffered a steep decline in excess of 30 percent. The saving grace in the report is the higher number of first time venture capital funds raised now compared to ten years earlier.
Key VC Parameters Contract
The National Venture Capital Association (NVCA) report notes decreases in the number of venture capital firms in operation at the end of 2013 compared to ten years ago in 2003. In addition, there are fewer funds, smaller capital and workforce now compared to 2003.
In the year 2003, the venture capital industry had roughly $280 billion in capital. In comparison, it was only $221 billion at the end of last year, a decrease of 21 percent in the last 10 years. The workforce on the other hand had a sharper correction plummeting to about 5,900 at the end of 2013 from approximately 14,800 in 2003, a drop of 60 percent.
There has also been a decrease in the number of firms as well as the number of funds in operation now compared to 2013. The yearly publication notes that there were 874 venture capital firms in the US at the end of 2013 compared to 951 in 2003. The number of funds in existence was also lower at 1331 in 2013 compared to 1788 in 2003.
Investments Stable
The report notes that since the year 2002, total dollar investments have remained in the range of $20 billion to $30 billion. Last year, it was towards the upper end of the range with investments of $29.5 billion in 3,382 companies.
NVCA president Bobby Franklin noted that tight exit markets and lackluster returns made it challenging for venture capital firms to raise money last year. In all, firms raised $16.8 billion through 187 funds, lower than the $19.6 billion raised in 2012 and $19 billion in 2011.
Software was the most favored sector in 2013 and received 37.3 percent of total dollars followed by biotechnology, which got 15.4 percent of total investment. California was once again far ahead of other states accounting for 50 percent of all venture capital investments. Second placed Massachusetts and third ranked New York each accounted for 10 percent of the total investment.
The year 2013 also saw a record 56 percent of the financing rounds going to seed and early stage companies. Typically such companies account for only one third of all investments.
Impact on Job Market
This data point of a shrinking workforce highlights the struggles faced by the venture capital industry. That said, the environment for venture funds significantly improved last year with venture backed companies raising $11.1 billion through initial public offerings. While the improving environment is good news for the industry, it will need a few years of brisk deal making for it to translate into meaningful employment growth in the sector.
