Explaining Southern California's economy

How big should venture capital be? Try less than $25 billion

Vincent Mallet

AFP/AFP/Getty Images

A Palo Alto startup. You can still get funding, but if you don't succeed rapidly after early stage investment, you could be in trouble.

Earlier this week, the National Venture Capital Association and Thompson Reuters assessed the current state of the VC fundraising landscape. The verdict is that VC has "settled in a 'new normal,'" with the total number of funds decreasing while the total amount of money raised went up in 2012.

That performance lived up to expectations from earlier this year.

The total raised was $20.6 billion, which the NVCA suggests is the "Goldilocks" number: Not too big, not too small — but just right. There's a sense in the VC world that it's critical to keep the total amount of money raised under $25 billion.

That much money flowing into VC on an annual basis means that entrepreneurship and innovation can be funded in an optimal manner, without too many bad companies and bad ideas getting money, just because VCs need to put their funds to work.