Market Overview

Is Your Startup About to Power Down?

Venture capital firms are the life blood of the Internet industry, as new firms pop up seemingly every day in a variety of different fields.

Heck, Benzinga is funded by a venture capital firm, LightBank, which was funded by Eric Lefkofsky and Brad Keywell, co-founders of Groupon (NASDAQ: GRPN).

Despite the rise of venture capital firms from the financial crisis in 2008, it looks as if venture capital funding is slowing down. In a startling matter. This is not good if you are an entrepreneur trying to start your own company, or trying to do additional fundraising for your existing start up firm.

GeekWire.com noted that venture capital funding in the third quarter of 2011 fell 53% from the previous quarter, to just $1.72 billion. Compare to it to the third quarter of 2010, when venture capital funding raised $12.25 billion for start up companies.

The $1.72 billion raised in the third quarter is the lowest level in eight years, and is "reflective of the continued challenges in the venture capital exit markets," Mark Heesen, president of the NVCA said. He went on to say, "Until we begin to see a steady and sustainable flow of quality IPOs which return cash, limited partners will remain on the sidelines and the venture industry will continue to contract."

As the economy slowed during the middle of the year and into the third quarter, venture capital funding slowed as well. Due to the problems in the financial markets, Europe, as well as general social unrest, it has been harder for venture capital firms to deliver returns to their investors, and cash is being held in the funds, as opposed to being lent out to start up companies.

This is not coming from just one source either, as Dow Jones put out a similar press release in October, with similar statistics. Dow Jones noted that just $2.2 billion was raised during the third quarter for venture capital funds, down 24% from a year ago. The Wall Street Journal said that early stage companies were the hardest hit, as they have not been able to raise as much cash as they were in the previous few years.

Start-ups are the companies that create jobs in this country, and that is something the U.S. sorely needs: jobs. If start-ups in hard hit areas like Michigan, Ohio, Illinois and other areas with high unemployment are unable to get the funds that start-ups in California, New York and other areas flush with venture capital cash, then the start up hiring to try to build the "next big thing" might just have to take the building blocks down and start over again.

What do you think? Is capital less available for startups? Let us know in the comments.

Posted-In: Groupon lightbankEntrepreneurship Startups General Best of Benzinga

 

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