Five Years Too Late

April 1, 2009

Liquidity Perspective

Filed under: downturn, venture capital — Tags: — fiveyearstoolate @ 10:17 am
Eric Wiesen

Eric Wiesen

Courtesy of this morning’s VentureWire, the numbers for venture liquidity in Q1 are out. And I’m sure you will all be shocked to hear that they aren’t very good. In fact, overall liquidity across the venture industry was just $3.2B, the lowest for any quarter since 2003.

Full stop. Lowest quarter since 2003. So in the midst of the worst financial contraction of the modern era, venture capital liquidity was bad, but better than it was in 2001 or 2002. I think that, while not to be a Pollyanna about where the industry is today, it’s important to note that during a quarter where the public markets had their worst Q1 in 70 years, the venture liquidity numbers are bad, but better than they were the last time things went badly.

Further, and also of interest, median hold times were down dramatically in Q1, from an average of almost 8 years in Q4 to about 4.7 years in Q1. Part of this is just a shifting “market mix” where more companies are getting taken out early. It will be interesting and important to see if this trend continues into Q2 and beyond.

Ultimately, this data is not dispositive about where venture capital is headed. When I was at the most recent Kauffman Fellows module in Palo Alto last month, we had a number of high-profile industry experts offer a range of perspectives on where the venture business is going, and some of them were powerfully pessimistic about returns, shrinkage within the industry and the amount of capital that will be deployed over the next few years. Here at RRE we continue to believe that there is a core need for this type of capital, and that while this cycle is worse than any we’ve seen, the fundamental business purpose behind the venture business remains vital.

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