According to a new report from the National Venture Capital Association and Thomson Reuters, just 38 firms raised cash during the fourth quarter. That was down 41 percent from the previous year.
Now, here’s the kicker: The actual amount of capital invested in those funds increased by a whopping 162 percent to $5.6 billion. About 20 percent of the cash flowed into one fund. Khosla Ventures, a firm led by veteran venture capitalist Vinod Khosla and a backer of Seattle firms such as AdReady and TerraPower, raised $1.05 billion.
The cold, hard truth is that it is getting much harder for the vast majority of venture capital firms to raise money, especially those that haven’t been around that long.
“This past year we saw more venture capital money raised by essentially the same number of firms, a sign that consolidation within the industry is continuing,” said Mark Heesen, president of NVCA. “We also continued to invest more money in companies than we raised from our investors. Both of these trends – if they continue — suggest that the level and breadth of venture investment is starting to recalibrate to reflect a concentration of capital in the hands of fewer investors. Our cottage industry is indeed getting smaller still and that will impact the startup ecosystem over time.”
That’s going to be an interesting story to watch in 2012 as a number of Seattle firms consider additional financing.
Last month, Seattle’s Voyager Capital filed paperwork to raise up to $125 million. Last Friday, we reported that Founder’s Co-op — a small seed fund based in Seattle — raised $8 million from a group of about 60 limited partners.