A new report released today shows the changing climate of the venture capital industry, and one of the most striking aspects is the dwindling number of venture capital firms now operating in the U.S.
There are now 798 venture capital firms in the U.S, down from 1,009 that existed in 2005, according to the National Venture Capital Association’s annual workbook report. That’s a significant trimming of the VC ranks, showing how more money has consolidated over the past 10 years in the hands of fewer VC firms.
The number of funds also has fallen, dropping from 1,764 in 2005 to 1,224 in 2015. That’s a 30 percent drop.
Even with those declines, the amount of money flowing into the sector has not fallen as rapidly — indicating that more money is going to fewer firms. Last year, venture capital firms raised $28.2 billion, down six percent compared to the $30.1 billion raised in 2005.
The NVCA indicated that things are changing in the VC industry, which over the years has provided the startup fuel to help companies such as Amazon.com, Intel, LinkedIn and Facebook get off the ground. According to one study cited in today’s report, 42 percent of the publicly-traded companies founded after 1974 took venture capital financing, and those 556 companies represent 63 percent of the market capitalization in the U.S. of the post-1974 companies.
“A healthy venture capital ecosystem necessitates balance, and last year provided some recalibration for the industry. Nonetheless, the ecosystem remains robust, covering a vast range of stages, geographies, sectors, and players,” the report says. “And, savvy investors with capital remain in a prime position to fund the best opportunities and fuel startups across the United States.”
Not surprisingly, much of the venture capital ecosystem in the U.S. revolves around California, home to Silicon Valley’s famed Sand Hill Road. At the end of 2015, California-based venture capital firms managed 55 percent of funds, up from 54 percent in the year prior. The report notes that this trend was tied to California venture firms raising large funds, and East Coast funds moving west.
The amount of cash flowing to startup businesses parallels this money center, with 57 percent of all venture capital dollars going to California companies.
You can see the full NVCA report here: