That’s the position my Kirkland neighbor OVP Venture Partners is taking on the state of the industry in this newsletter.  They sort through some data from the NVCA Yearbook and iterate it a bit further examining ‘active’ venture funds defined as those having made an investment in the past 12 months.

In 2000, there were 1156 different
venture firms that made at least one new deal. In 2006, there were only 597. This
is more like a 50% drop, not just 15%! We think that is the big, so far unwritten,
story. The US venture industry has been cut in half. That certainly qualifies
as a major shake-out.

Fund sizes are about double what they were in 2000 as most of the smaller funds created during the bubble years have disappeared or become inactive. 

The venture capital industry is healthier
today than most people realize, given the magnitude of the shake-out already behind
us.

Venture capital as an asset class appears to be normalizing with the speculative money going to the ‘quality’ firms.  That said, there is still no shortage of venture money chasing anything with a web 2.0 label on it.  My favorite definition of web 2.0 is from Don Dodge = one web application, 2 founders, and 0 revenue…