After arguing a few years ago in a Kauffman paper that the VC industry needed to shrink back to heath, it has mostly done so. Granted, the industry isn't exactly thriving yet, but most of the asset class shrinkage is now over, so further gloom and doom is more a reflection of a particular writer's psychological state than of the merits of cutting VC industry by larger amounts from here.
From the WSJ, here is a new graphic showing same:
I would have liked to see the industry contract somewhat more, but we're not far off where I thought we would get to, back to a run rate not far off -- in inflation-adjusted terms -- where we should be based on 1990s figures.
Where do we go from here? Guess is we will see an uptick in allocations to venture against this year, even if the number of firms funded doesn't increase markedly. Nevertheless, improvement equity returns and a better IPO market will bring more investors into the fold, for better or worse, and even a collapse in the embarrassingly overheated accelerator segment -- a collapse that will almost certainly come later this year -- will not change that materially.
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