Venture capital firm have raised $8.8 billion in the second quarter of 2016, raising 67 funds according to Thomson Reuters and the National Venture Capital Association (NVCA). In the first half of 2016 126 funds have raised a total of $22.9 billion. This compares to the first half of 2015 when 129 funds raised a total of $18.6 billion. The 2016 year to date totals suggest that total fundraising will likely exceed $30 billion this year and could even reach $40 billion.
While the numbers are impressive, I believe there may be cause for some concern. These totals don't include monies allocated to venture capital by corporate venture capital arms, mutual funds and hedge funds. These totals don't take into account angel investors. The bottom line is there is a ton of money in the venture capital ecosystem. This money will finance hundreds of venture capital companies over the next several years. The problem is that the exit market isn't keeping pace with this explosion of capital into the venture world. The amount of capital raised by funds but not invested is known as dry powder. There seems to be lot of dry powder in the industry right now.
In the first half of 2016, there were 155 total M&A deals, with disclosed value of $14.1 billion and 18 initial public offerings raising $1.5 billion, again according to Thomson Reuters and the NVCA. This means a total of 173 liquidity events. However, there were 1,061 deals in the first quarter of 2016 according to PricewaterhouseCoopers LLP and the NVCA, suggesting around 2,000 deals in the first half of 2016. Now the number of deals is different than the number of companies, but one gets a sense of the number of companies that have received venture capital funding is very large compared to the number of liquidity events. If companies don't or aren't able to achieve a liquidity event, the rates of return for venture capital will ultimately suffer.
Venture capital is a cyclical industry, and the amount of dry powder may be cause for concern.
Links:
http://nvca.org/pressreleases/venture-investors-raise-8-8-billion-second-quarter-invest-innovative-startups/
http://nvca.org/pressreleases/venture-backed-biotechnology-companies-continue-lead-charge-public-markets-tech-companies-remain-sidelines/
http://nvca.org/pressreleases/12-1-billion-venture-capital-deployed-startup-ecosystem-first-quarter-according-moneytree-report-3/
In the first half of 2016, there were 155 total M&A deals, with disclosed value of $14.1 billion and 18 initial public offerings raising $1.5 billion, again according to Thomson Reuters and the NVCA. This means a total of 173 liquidity events. However, there were 1,061 deals in the first quarter of 2016 according to PricewaterhouseCoopers LLP and the NVCA, suggesting around 2,000 deals in the first half of 2016. Now the number of deals is different than the number of companies, but one gets a sense of the number of companies that have received venture capital funding is very large compared to the number of liquidity events. If companies don't or aren't able to achieve a liquidity event, the rates of return for venture capital will ultimately suffer.
Venture capital is a cyclical industry, and the amount of dry powder may be cause for concern.
Links:
http://nvca.org/pressreleases/venture-investors-raise-8-8-billion-second-quarter-invest-innovative-startups/
http://nvca.org/pressreleases/venture-backed-biotechnology-companies-continue-lead-charge-public-markets-tech-companies-remain-sidelines/
http://nvca.org/pressreleases/12-1-billion-venture-capital-deployed-startup-ecosystem-first-quarter-according-moneytree-report-3/
