Five years after the Dot-Com Bust
Correction update: The statistics on how many bubble-era companies are alive, and how many are out of business, came from VentureOne, and this is now correctly reflected in text below.
Back in 2002, venture capitalist Tom Crotty stopped by our office for an interview and seemed pretty depressed: "1999 funds, they're screwed," he said. He referred, of course, to the hopeless outlook for venture capital funds raised in 1999. They were invested at the top of the market at outrageously high valuations. Many of the companies backed went out of business.
But in our take today on the VC industry, (or here, if you still can't be bothered to register), we noted how Crotty's firm, Battery Ventures, like many other venture firms, has done much better than expected. We noted again the unbelievable fact that there are still as many, if not more, venture firms today than there were at the peak of the Bubble.
True, many of the new VC firms started in 1999 and 2000 have slowed their investment pace drastically, and may be singing their swan songs without us really knowing. Indeed, only 786 firms made investments during the 4th quarter of last year, compared to 1,385 firms making investments in the 4th quarter of 2000, according to Venture Economics. Though the latest numbers may also reflect a slower, more sober investing climate -- not necessarily pending death of venture firms.
The VC story is one of the two more upbeat stories in the Mercury News series (see yesterday's on innovation). The first two days (series started Sunday) were more sober. The VC industry collectively saw an Internal Rate of Return of 14 percent for the most recent period in 2004, compared to 232 percent in 2000. But hey, it's saying something that it's still positive. With investors still pouring all this money into the VC sector, you'd think all the competition among firms would drive down returns for everybody.
Another interesting statistic, courtesy of VentureOne: In 1999, there were 2,161 initial VC financings of start-ups, and 40 percent of those are still alive and kicking (private and independent), with only 32 percent out of business. Rounding out the rest, 3 percent are publicly held, and 25 percent acquired or merged. In 2000, there were 2,680 financings, and 47 percent are still alive and kicking, with 34 percent out of business, one percent publicly traded, and 18 percent acquired or merged.
Also, see more analysis of existing VC firms in extended entry, below, which suggests the biggest fallout has been among corporate VCs.
"VC Industry Survives"
Investors with 2 or more equity investments in US venture backed companies (includes Corps, LPs, I-banks, PE firms that do some VC, etc.)
VC (ONLY) investors with 2 or more equity investments in US venture backed companies
US-Based VC (ONLY) investors with 2 or more equity investments in US venture backed companies