Those entrepreneurs seeking venture capital investment in the months ahead may have a few struggles ahead of them, as the market remains uncertain and debt levels, unemployment and unease plague many markets across the world.
Investment up overall
2012 seemed to mark something of a comeback for the industry. Numbers were up, although they weren't as high as those seen in previous years. Estimates revealed U.S. venture capital firms raised $20.6 billion in 2012, giving it a 10 percent edge over 2011, according to data gathered by Thomson Reuters and the National Venture Capital Association (NVCA).
Fourth quarter slowdown
While the increase may appear significant, data indicates the during the fourth quarter fundraising experienced a large downturn. Firms raised $3.3 billion during this period, a 35 percent decrease from the numbers seen in the third quarter.
"The venture capital fundraising environment has settled into a 'new normal' which is characterized by a barbell structure of larger funds which are stage and industry agnostic on one end, and smaller, early stage, industry or region specific funds on the other," said Mark Heesen, president of NVCA. "It is on these two ends of the spectrum where capital is concentrating and successful firms are raising follow-on funds. Simultaneously, new funds continue to enter the asset class, almost exclusively at the smaller end of the spectrum. This structure, coupled with increasingly discerning limited partners, has kept the overall size of the venture industry below $25 billion each year since 2009, a size that many believe to be optimal for successful investing and maximizing returns."
Growth coming in 2013?
The slowdown in the fourth quarter of 2012 and speculation that firms are concentrating on certain industries may dishearten those seeking business financing in the new year, whether to they're looking to launch their business or implement growth plans. However, there are options for those firms that are struggling to obtain investments in their companies.
Those entrepreneurs unable to obtain funds from lenders such as big banks and traditional venture capitalists may need to think outside the box and look to small and mid-sized banks to increase their chances of receiving approval for such an investment. Working with such bodies and establishing strong relationships with them can work to a company's benefit in the long run, as they are often able to provide more flexible banking options for their clients.
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