Venture Outlook 2011: Returning to the Way We Were

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in her presentation was how the industry has come full circle to a level of venture investing that is more like the mid-1980s.

Mitchell is a co-founder and managing director at Foster City, CA-based Scale Venture Partners and the current chairwoman of the National Venture Capital Association. She acknowledged the industry’s pessimism, saying there has been an exodus of capital from the industry, and venture capital’s 10-year return on invested capital has been terrible. Yet Mitchell also said “VCs are perennial optimists,” and she maintains that the industry has been slowly resetting itself. She sees venture capital moving to “new normal” in which fewer VC firms are raising less capital and investing in more deals.

One encouraging slide in Mitchell’s presentation is the increasing number of IPOs and buyouts of venture-backed companies.

She also says that the pre-funding valuation of venture-backed companies is slowing increasing, which seemed to hearten the San Diego audience.

Some other highlights:

—The U.S. venture capital industry is now raising about $12 billion a year for less than 200 venture funds. That’s a far cry from the peak in 2000, when the industry raised more than $100 billion for nearly 700 funds. Yet Mitchell noted that $12 billion is less than 0.1 percent of U.S. gross domestic product, while the revenue generated by venture-backed companies accounts for about 20 percent of total GDP in the U.S.

—Still, venture returns have been poor compared to other equity indexes, returning 6.4 percent over the past year (less than half the investment return of Nasdaq, S&P 500, and the Dow Jones Industrial) and losing 4.2 percent over the past decade. The venture sector shows the highest returns, though, over the past 20 years—24.3 percent.

—The U.S. venture capital industry has raised a total of about $56 billion over the past three years and invested about $67 billion over the same period of time. In other words, VCs invested $11 billion more than they raised.

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Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at or call (619) 669-8788 Follow @bvbigelow

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