Law firm Fenwick & West released its 4th quarter 2010 Venture Capital Survey, with 67% up-rounds, 21% down-rounds, and 12% of rounds flat. The price of rounds increased by 61%, most probably because of the slipstream of secondaries in deals like Facebook, Groupon, Twitter. Mergers and acquisitions paid $33.9 billion in 445 transactions, a 63% increase in dollar terms from 2009. For all of 2010, VentureSource reported 46 venture-backed IPOs raising $3.4 billion, a close to a six-fold increase in the number of deals from the eight venture-backed IPOs raising $0.9 billion in 2009 (over half of the 32 IPOs in 4Q10 were China-based companies with U.S. venture investment). Despite the spinning of wheels by loaded VC funds producing minus 4.6% 10-year returns, the confidence of LPs in Venture Capital continues to slide: fundraising by U.S. venture capital funds fell to $11.6 billion in 119 funds in 2010, a 14% drop from the $13.5 billion raised by 133 funds in 2009.
It will be interesting to see whether the participation of new secondaries and growth funds from JP Morgan, Bain Capital, etc. will slant the numbers this year and drag more lemmings into their wake. Nevertheless, Venture Capital returns will center on the viability of fewer companies – opposite to the spray-and-pray funding strategies of many VCs. Many parameters at play here, but I expect to see them run for secondaries to improve statistical spin in VC a bit, to then dry up quickly and produce an even harsher reality of the deployment of subprime risk for the most money in the asset class. Another financial bubble is imminent, not to be confused with a bubble in technology.
The future of innovation remains in the rough hands of a dysfunctional financial system, and uncontrolled will continue to demonstrate how it cannot scale to the massive greenfield in technology adoption that lies in wait to be picked up.