California is the capital of venture capital, so trends in the industry are vitally important to our state. In the aftermath of the financial crisis, VC fell off a cliff, declining from a high of $25.3 billion in 2008 to a low of $13.8 billion in 2010, according to Thomson Reuters and the National Venture Capital Association. So far in 2012, however, fundraising is looking up, with a first quarter total of almost $4.9 billion.
This is a pace that could deliver a $20-billion year in 2012.
But there's some bad news. Only 42 VC funds participated in these raises, waaayyy down from the 212 funds that were raising money in 2008. Also, a winner-take-all mentality is taking hold, decisively, in VC as five funds have accounted for 75 percent of total first-quarter fundraising — $3.6 billion. That leaves 37 other funds fighting over just over a billion in remaining funding.
Andreessen Horowitz alone accounted for $1.5 billion, meaning that one VC firm gobbled up 42 percent of funding that was raised. Of course, that may be it for Andreessen Horowitz for a while. Still, it does indicate that an elite group of VCs is dominating the fundraising market, as the entire industry continues to streamline and diversity into accelerators, incubators, and crowdfunding at the lower end, leaving startups in a difficult place if they can't quickly graduate to major-league VC.
Ultimately, I think this means that startups that survive the early funding stages can get access to real money later. But the pressure on them to scale, once they have a technology that the market wants, will be enormous.