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The State of the Venture Capital Market
in 2013.  Current Trends and
Implications for the future.         
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What has been funded recently and what will be in
2013 and beyond?

The Venture Capital market has always grown in fits and
starts. Although the modern venture capital funding market
started in a meaningful way in the 1960’s, it didn’t truly
blossom until the mid 1980’s. It was then that technology
investment started to grow immensely. The next tidal shift
occurred in the mid 90’s through 2000. This was
generated by outsized investments in the Internet,
Telecom and technology industries. The venture market
grew to its highest money inflow levels ever, reaching its
peak level of money raised in 2000 of almost $100 billion,
eclipsing by many times its level over the previous
decades, even adjusted for inflation.

Of course, both the mid 1980’s and late 1990’s were
periods of tremendous overall stock market
booms/bubbles. These markets were fueled by
tremendous amounts of incoming cash, as well as outsized
returns on those investments. Some of this money, in
search of new markets and opportunity, fueled the
tremendous venture capital market growth of these periods.

The collapse of the venture capital market in the early
2000’s is still being felt today. It took a number of years for
many funds to continue to fund and find exit strategies for
the investments made during the peak period. That was
assuming the investments were still viable at all. Returns
were much lower in the ensuing years, driving down the
money raised  with it. Still, the market gradually recovered,
raising almost $40 billion in 2005 and peaking at over $50
billion in 2007. The market then contracted sharply again
as a result of the overall financial collapse related to the
mortgage and ongoing financial crisis of 2008 and beyond.

Against the backdrop of these peaks and collapses, the
median amount of venture capital raised over the last ten
years has been $22 billion annually. It has been on the
slight upturn since 2009, rising up close to the median in in
2012 at $21 billion. The general trend appears to be
slightly upward in this market in the next few years.  On the
negative side, we still have excess investments being
made with money raised in previous years. For instance,
the average amount invested in startups over the last ten
years by these VCs is $33 billion. That is, there has been
a net outflow of funds managed by VCs over this period.  

They are investing more money than they are currently
raising - winding down some positions, and reducing their
positions somewhat overall. Of course, this trend cannot
continue indefinitely, and will ultimately result in lower
annual investment, a negative signal to the market.  
However, it may be a temporary lull, as the rest of the
stock market has moved in early 2013 to near all-time
highs.  If this continues, I believe it will ultimately trickle into
the venture capital market. If the equity markets are on an
extended significant upswing, eventually the venture
markets will appear undervalued and money will flow back
in.  So given the opposite but ultimately positive forces, I
believe we are at the beginning of an overall rise of money
inflows into the venture capital market over the next few
years.

Let’s take a look at some of the bigger investments made
in 2012, and see what trends are becoming apparent as
we move into 2013.

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