The second quarter of 2009 saw the lowest level of capital going into VC funds since the first quarter of 2003, according to the National Venture Capital Association (NCVA). During the second quarter, VC funds in the U.S. raised only $1.7 billion. This is an 82 percent drop from the second quarter of 2008, when $9.3 billion was raised, and 63% less than what was raised during the first quarter of 2009.
Also, the number of funds which raised capital dropped in half from last quarter to only 25 funds. This is a 13-year low! The average amount of new capital going to each fund was $68 million, down from $94 million in the previous quarter.
This spells big trouble for our economy. No start-ups means no growth and less opportunity. It is also a big sign that qualified investors willing to cough up funds are becoming scarce. This precipitous drop is probably due to these investors having their wealth cut in half in the recent months, but also because of the increase in taxes on capitol gains that the Government is threatening. Punishing the investor is never going to spur more investment, which one of the key things that we need right now.