For years after the Internet bubble burst, the financial media covering venture capital would talk about the “overhang” which is best described as the amount of money raised by VC firms less the amount invested. The larger the overhang, the bigger the potential bubble, as VCs, in their quest to find a home for this bucket of uninvested capital, would presumably fund too many companies.  Fast forward 10 years and quite the opposite phenomenon is occurring.

Today the NVCA and Thomson Reuters released the Q3 2011 venture capital fundraising numbers, which represent the lowest dollar level raised since the third quarter of 2003.  Fifty-two funds raised $1.7 billion, a 53 percent decrease in dollars from the third quarter of 2010.  Next week, we will be releasing our MoneyTree venture investment data and while we do not have final numbers, you can bet the total dollars invested into start-up companies will be a multiple of the amount raised.  It has been this way since 2008 when the industry began investing more than it was raising.  In fact, by the end of this quarter, the venture industry will have invested at least $20 billion more than it has raised in the last 3+ years.

And just like a bubble, this imbalance is not sustainable.  Unless the industry begins to raise more money, we can expect investment levels to decline in the coming years in a significant way.  The overhang is long behind us.