1Q 2010 Money Report: Venture Capital, Private Equity and Angels

By Carol Tice
Exclusively for BVR Times

There's been a lot of doom talk about venture capital lately, starting with a BusinessWeek article last fall that forecast the venture-capital funding pool would continue shrinking until it was half the size of the boom times. Since then, though, fresh data has arrived that offers a bit more hope.

The PricewaterhouseCoopers/National Venture Capital Association study for the first quarter of this year shows both deals and amounts funded are up – 681 deals for $4.7 billion this year versus 635 deals for $3.4 billion in the first three months of last year. Funding rose for companies at every stage, too, from seed-stage on up.

So instead of the VC fall having no bottom, we already seem to be on the rebound. Biggest-winning sector: Clean tech, where funding jumped 87 pecent. Yes, the sector is consolidating , so there may be fewer places to pitch in the future. And we're definitely not out of the woods yet.

The leading indicator for venture capital is how much VC firms raise for new funds. That figure is still going down, with VC firms raising $3.6 billion in the first quarter, a whopping 31 percent fundraising decline and the slowest first quarter for fundraising since way back in '93. Less dollars raised ultimately means less VC money in the pipeline for entrepreneurs to tap…so that's a troubling sign that the VC sector is still struggling.

Private equity

The picture is mixed over in private equity, too – it sort of depends on who you ask. A global PE study from Preqin showed $50 billion was raised worldwide by private-equity firms in the first quarter, up 5 percent from the last quarter of '09.

Comparing the same quarter of '09 I think is more revealing of trends, as fundraising is a seasonal business. Dow Jones Private Equity reports U.S. PE funds raised $17.6 billion in the first quarter, down 8 percent from first-quarter '09.

An interesting chart on new-media site Mashable compares the VC and PE trends from Dow Jones data, and concludes VC is recovering, while PE continues to struggle.

Angel investing

Finally, bad news from the angel-investing world for startup companies. Angels are a bit more nervous these days and are investing more of their dollars in more mature companies. A Center for Venture Research study shows overall angel investing was down roughly 8 percent last year. The percent of investments that went to seed-stage companies shrank to 35 percent, compared with 45 percent in '08.

Overall message: it's still wicked hard to find small-company financing. That's likely to be the case for most of this year, at least, if not longer. Companies will need to continue to be creative in looking for funding, and to operate lean.