Venture capital, a main source of startup funding and job creation, is in trouble. If it doesn't start having initial public offerings (IPOs) soon, it will face "some sharp contractions," experts told Institutional Investor.
Only 11 companies backed by venture capital had IPOs in the fourth quarter of last year, down 67 percent from the previous year, the financial publication reported.
"Venture capital funds need to raise $20 billion or more in 2012 or face sharp contractions,” Mark Heesen, president of the National Venture Capital Association, told Institutional Investor.
That goal might be difficult to reach. Venture capitalists have never come close to raising that much in recent years.
The funds raised $16.2 billion in 2009, $13.3 billion in 2010, and were estimated to raise about $15 billion in 2011. For the last three years, venture capitalists have spent more money than they have raised.
According to an NVCA survey, 58 percent of VC players think biopharmaceutical and medical device investments will decrease and 55 percent expect clean technology investments will fall.
Venture capital, as well as hedge funds and private equity, suffered meltdowns following the financial crisis in 2007 and 2008, but other asset classes have recovered, Institutional Investor reports.
The problem is that companies are having more difficulty obtaining funding for their later-stage needs, known as B or C series funding, writes columnist Don Reisinger for cnet.com.
He cited a reported from VC researcher CB Insights that states, "The reality is that VC funding is a funnel."
"More companies get Series A than B than C — etc. Within tech, our data shows the VC funnel has gotten fat at the top (a lot of Series A and Seed deals)."
Some companies, the report says, don't deserve to get late-state funding and close shop or are acquired if they're lucky.
Yet Naval Ravikant of AngelList, a website that helps emerging companies find funding, said only one or two companies out of every 50 to 100 startups obtain financing, Reisinger notes.
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