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Old Venture Capital Firms Disappearing

Elton Sherwin, founder of private equity firm Ridgewood Capital’s Palo Alto office reports: “There appears to be over 400 venture capital firms that are either inactive (stopped investing) or have quietly gone out of business,”.  This is from a population of less than 1,000 U.S. Venture Capital firms.  Flag Capital, reports that 86 U.S. venture capital firms were active in 2012, down from 441 in 2000.   

The US VC environment continues to downshift facing increasing competition from Angel Groups, Peer to Peer Networks and mega Angel investors.  Likewise the cost of startups in the software space is declining.   Many VCs are participating in later round funding only.  Though these investments are more likely to provide return, none of them are likely to provide the 300-400% returns VCs have historically targeted.  The hastening in lack of new vintages means that more VC consultancies will arise trying to guide capital stacks, Angel and Peer to Peer, through investment on an advisory basis.

 In the past information and branding were an advantage to Venture Capitalists, but in an era with easy disintermediation, VC brand irrelevance, ready information on the internet and an ability to reach customers more directly, what is the VC advantage outside of capital?  Expect more VCs to align with pockets of capital for lower middle market PE firms or family offices.  

More information can be found at Businessweek here – http://buswk.co/ZNrG8H or PE Hub – http://bit.ly/XWhI7q

 

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