Welcome Back Kotter – Some Thoughts on VC Allocations

It has been too long since I've posted here. All the regular excuses apply. I have a new job, I've been trying to work out more, dingo's ate my baby, etc. etc.

A few weeks ago I sat down with Brent Ahrens of Canaan Partners to talk about the industry and basically catch up. We got to discussing the state of venture and Brent said something that I wanted to play with a bit more; he said that the amount of money going into venture was pretty steady (the bubble years aside). Essentially he was pointing out that the graph of money allocated to venture should should be pretty linear rising along with GDP and the market. I thought it would be fun to graph this and see how accurate it is.

Turns out the NVCA beat me to it. 🙂

US VC Investment as percent of Mkt
As we can see, commitments are slightly above average, but not widely out of whack.

Since 2002, commitments have run just slightly above the historical average (0.146% versus 0.139%).

Since 2002, investments have run slightly below the historical average (0.155% versus 0.164%).

<via It Ain’t Broke: The Past, Present, and Future of Venture Capital by Steven N. Kaplan and Josh Lerner>

Also, investments are slightly below average. But this is hardly the giant overhang that people have been discussing. If anything, the situation should be getting better as the bubble funds from 1999 begin to totally exit the market since their 10 year investment periods are running out. (We can look at Elevation as an example of a high profile fund that can no longer make new investments no matter how much dry powder it has.)

Given this, the contrarian in me says that now should be a fine time to invest in angel and venture. Now if I can just find that spare 20K in change in my couch.

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