Today’s venture fundraising numbers of 32 VC funds raising $3.6 billion represent the slowest opening quarter since 1993.  Our press release with Thomson Reuters can be found here.

Anyone who thought that we would see a significant rebound this year from 2009 fundraising levels (140 funds raising $15.8 billion) will be disappointed.   The environment will remain extremely challenging in 2010 for a number of reasons including:

Continuing weak exit market:  Though Q1 2010 showed some promising signs in terms of exit activity, the IPO market has a long way to go before volumes pick up in a big way.  Without being able to demonstrate strong exits and distribute cash back to LP's, many firms will remain in the waiting game.

Allocation issues:  Anecdotally we are hearing that many buyout firms are now starting to call down capital and make investments, compelling many LPs who have invested in buyout firms to hold back on making additional commitments across the board, including venture.

Realized expectations: While many LP's have long been aware that venture's 10 year horizon returns will decline as 1999 figures roll off, we now are actually facing this reality rather than anticipating it. Hard numbers may alter some LP's view of the asset class in the short term, thereby impacting fundraising.

Will venture firms be able to continue to raise money?  Yes, and there are certainly those that will be able to do so easily. Improved fundraising activity will lag an improving exit market which would suggest that the second half of 2010 will see mild upswings in funds raised.  However, we do expect to see further consolidation of the venture capital industry and another year of sub $20 billion raised.  It’s back to the future as the venture industry will continue to operate in 2010 at mid -990 levels.  Interestingly, according Cambridge Associates, cash ratios from the 1993-1996 vintage funds were some of the most favorable on record.  Implication:  Those firms that raise funds this year will be well positioned to perform.