Remember back in 2000/2001 when the bubble burst?  The fallout is finally hitting the venture capital industry.  Scott Ticer’s comment on the post about the study from the University of Dallas got me thinking, “What is really going on the VC industry?”  The answer wasn’t hard to find.  Yesterday Russell Garland wrote a story in the Wall Street Journal titled, “The Incredible Shrinking Venture-Capital Industry” where he suggests that the downsizing of the venture industry is still very much alive.  Earlier this year I wrote about the departure of more and more VC professionals in a post titled, “Venture Capital’s Brain Drain“, of course my thoughts were anecdotal, but Russell’s piece seems to confirm my thesis.

According to the research unit of Dow Jones there are 30% fewer venture capital firms today than there were in 2000.  Out of the total 884 venture capital firms, more than 224 (27%) didn’t make a single investment in 2007.  Russell suggest that it is very likely that many of these won’t exist in the coming years (i.e. if you don’t invest you will die).  Mark Heesen, the president of the National Venture Capital Association, explains “We are finally seeing what in our view is the beginning of the impact of the bubble. Venture funds typically have a life of at least a decade and firms can soldier on long after they have run out of capital to back new companies.” Even more troubling is the statistic that 55% of venture firms who did make investments in 2007 only completed 3 or fewer investments.  29% of venture firms only made one investment.