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Is Venture Capital Dead?

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07/01/09 Even with the stock rebound, the second quarter was the worst quarter for U.S. venture capital investment since 2003. Overall venture-backed investment fell 57% from the second quarter of 2008, says Dow Jones’ VentureSource today. That’s roughly $3.6 billion worth of VC out of the market.

“Venture capital investment has all but dried up,” writes our tech adviser Patrick Cox. “There are two primary causes. One is purely psychological. In a steep downturn like this, investors who should know better get nervous and hold capital. The other, which will be longer lasting, is the ‘crowding out’ effect. With government debt at record highs, capital is being sucked up by the Fed to finance its borrowing.

“This, ironically, presents an enormous opportunity for the VC players who are still investing. With so little VC money on the table, those who are willing to make deals are making great deals. This is exactly the time to be in the VC business.”

But the venture capital market in Brazil is alive and kicking. VC investment has more than quadrupled there since 2004, says the Brazilian Association for Private Equity & Venture Capital today. The market was a measly $6 billion then. VC investment totaled $28 billion in 2008.

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Ian Mathias

Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.  

Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland. 

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2 Responses

  1. mark sivad said

    I don’t read about any deals being done either in the US or abroad.

    on July 1, 2009.
  2. lonnie hanson said

    To-the-point post. Here are couple thoughts. Venture funds seem to feel disoriented in the current economy. What excites me is that positive trends are emerging for the US private equity industry in comparison to last 2 years, supported by improved valuations and conditions in the capital markets. The PE industry has not been immune to the affects of the struggling economy, as 2009 results demonstrated, but performance in the beginning of 2011 has been positive. Opportunities abound in the current environment offering ample PE investors capital to deploy, and evidence that some of the best performing PE vintage returns, in the past, were made near the bottom of the cycle.

    on February 23, 2011.

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