Venture Capital In 2012 : A Cautious Optimism

The last numbers of 2011 just got released : 2011 was a very good year for Venture Capitalism in the U.S. With more than $30B invested in startups in 2011, representing a 30% raise, this is the biggest record in a decade ! VCs were optimistic at the beginning of the year, and they were right to be so. And every industry sector benefited from the pouring money coming from the VCs, some more than others of course.

The trendy web has got the biggest chunk of the pie, with more than $10B investments in 1 175 deals, accounting for one third of everything ! The two other giants, the cleantech and life science industries, fared relatively well, attracting respectively $5.2B and $7B of VC money into their companies. That’s great news !

But wait, is there a catch ? As always… VC firms struggled for the 4th consecutive year to raise money from their traditional investors, barely topping $18B commitment from them. Even though it’s 31% more than in 2010, we are still way below the amount raised before the financial crisis ($30B). That’s a sign that venture capital is still recovering from the crisis, despite the fantastic amounts spent. Most of all, that could be a sneak peak of what could happen to companies trying to raise cash in the next years : a shortage !

Also, and in great paradoxical movement, VC firms tend to make more deals with very young companies, while at the same time redirecting more cash toward late stage companies ! Indeed, first time deals dropped by 33%, while late deals increased by 43 % ! That’s not good news for newcoming entrepreneurs…

Still, VCs are quite optimistic for 2012, but remain cautious. It even seems that 2011 was too good to be true ! They expected to keep struggling to raise money form their usual investors, and some of them are quite wary about the web industry, as rumors of the froth becoming a bubble are spreading out .. Let’s hope the 2012 results exceed their expectations ! Venture capital being fundamental to the development of certain categories of startups, this is vital !

Read the full article (in French)

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