TechPulse 360

In 2010, venture capital firms raised $12 billion (down from $16B in 2009) and invested $22 billion (up from $18B). For PricewaterhouseCoopers Steve Bengston, who spoke this morning at SDForum’s Quarterly Venture Breakfast, this is simply not sustainable.

Good News: deals are up

According to the MoneyTree report which tracks venture capital investing, venture capitalists invested $21.8 billion in 3,277 deals in 2010, an increase of 19% in dollars and a 12% rise in deals over the prior year. More here.

“2010 was a kind of a funny year… 3 flat quarters and one outlier which is really more of function of about 3 huge cleantech deals, so it wouldn’t be too much off the mark to say that 2010 was a bunch of $5 billion quarters,” explains Bengston.

Bad News: weak IPO market, lack of funds, no jobs, shrinking VCs, China

“The problem with venture capital is not how much (deals) is coming in, but how much it’s coming out,” says Bengston talking about the lack of IPOs.

Also, 2010 saw the biggest delta between VC investing and VC fund raising ($12B), the lowest since 2004. It’s not scalable!

On jobs, Silicon Valley saw no net job creation in 15 years!

“Here’s a period arguably the greatest period of wealth creation in the history of civilisation and there is no more jobs today than there were 15 years ago,” adds Bengston.

VC industry is shrinking:

“There’s a prominent VC that did their own study that claims that 97% of VC profits come from 15 companies each year. Now let’s say it’s only 90% coming from 30 companies. But it still begs the question: how many VCs do you need to find the 30 really good companies each year. Today the answer is: about 2000; and you might think it’s more than you need.”

On China:

“David Rubinstein, the CEO of Carlyle, was quoted recently saying that China was the #1 economy in 15 of the last 18 centuries. So, just because they had a couple of bad centuries, you don’t want to rule them out. They have a history of success.”

Other highlights of  2010 venture investing:

• Silicon Valley: 40% of the total VC investments, up from 23% in 1995
• 30 years ago, Boston was the mecca for venture capital investing
• Silicon Valley took over Boston about 15 years ago
• Now, Southern California is emerging as the next big area that might eventually eclipse Boston in a year or 2
• But no new net creation of jobs in Silicon Valley in the last 15 years
• About 200 series A deals (~$1 billion invested) per quarter
• Most of the money has been going in later stages, expansion rounds
• There were even “N” rounds of investing in 2010!
• Top active VC: Kleiner Perkins with 79 deals, over a deal/week; then First Round Capital and NEA
• Intel is the only corporation that has ever made the “Most Active VC” list
• 72 IPOs in 2010 vs 12 in 2009 or 6 in 2008; timid come back
• 274 mergers and acquisitions, the biggest since at least ’04; but low valuations
• Advertising is migrating to the Web and reach 20% of the $600 billion market
• Asian millionaires exceeds European millionaires