The National Venture Capital Association issued its latest quarterly report on VC fundraising and the news for enterpreneurs isn't good. Michael Greeley of Flybridge Capital Partners of Boston points out on his blog that 55 percent of the money raised went into the top five funds. He writes:
While I expected more rapid contraction of the industry, the amount of consolidation at the top of the pyramid is dramatic. Arguably this implies a more challenging time for entrepreneurs as there continues to be fewer robust VC franchises available to them.
That's one concern. Marcus said there's also cause for concern that such large funds won't be able to throw off the kind of cash investors associate with the high-risk, high-reward world of venture capital. "I think it will be challenging for those managers to produce venture-like returns," he said.
As many of you know, the challenges of the past five years for start-ups, early-stage, and even growth companies in accessing the capital markets have been significant. There are many folks saying that the traditional VC model is broken and, based on the recent report, it would appear that the market agrees. Funding is down and diversification of funding sources is shrinking. What is needed is a broader base of "not-so-risk-averse" capital sources that can be efficiently accessed. Smaller funds with more hands-on managers, capable of moving companies along the continuum from start-up to commercial viable enterprise, but without destroying the entrepreneurial spirit and unique culture of these organizations. Another $1 billion VC fund isn't going to be helpful. Creating 50 funds each with $20 MM to deploy would be. That's our view and in the coming months, we'll be looking to do exactly that. Stay tuned.