Monday, October 12, 2009

Venture Capital Shrinking. Bad Omen for America

Venture capital is the fuel that has charged the growth and wealth of America, since it was "invented" by wealthy capitalists such as the Melons and the Rockefeller families. It was the glue that stuck together ambitious entrepreneurs; sources of risk capital whose owners were willing to lose in exchange for vast profit possibilities, a free marketplace of buyers both consumers and businesses; and innovation and invention. The wonderful changes to the world are countless. After "Japan Inc." was supposed to take over the world of commerce during the Democrat rein of Jimmy Carter and a U. S. of high taxes, oppressive rules and regulations, and killing inflation, President Reagan stopped Japan Inc. in its tracks by slashing taxes, loosening regulations and stepping out of the way, letting lucky and tenacious Americans seek the American Dream. And find it many did. To the huge betterment of the world. That world is going, going... Entrepreneurs and their workers can't get rich. So why start innovative companies? Competition is no longer in the free marketplace, it's in Washington, D.C. where success comes in your political ideology, who you know and who you pay. Sarbanes Oxeley's ridiculous attempt to legislate morality was Death Step 1. Election of anti-business Democrats to control the purse strings and legislation was Death Step 2. Election of a president who has never worked for a living, but lived off the fat of government is Death Step 3 and the last one. This time it's not Japan Inc. (In the '80's it wasn't either, it was our own attempted suicide, which Republicans averted.) but China, Inc. India, Inc. Etc, Inc. Well no, again it's our own Democrat-led suicide. R.I.P. AMERICA

News from the Wall Street Journal, October 12, 2009, page C 3, "Echoes on 16th Floor: Venture Capital Exits" discusses the demise of many regional venture capital funds, from Dallas to Seattle (where only two new funds raised $16,000,000 this year against $507,000,000 to five funds in 2006.  Even New York only had a half a billion raised versus almost $2 billion in '06.  Nationally, $8 billion was raised the first nine months of 2009, $1 billion by one person, Vinod Khosla (who's concentrating on the Democrats' "green industries" to get government funds in after his) compared to $30.5 billion in 2006.

While still active, investing almost $30 billion in 2008, venture capital firms have had lower exit payoffs, the fuel that drives the industry. Exit cash equalled $25 billion. Most partnerships last ten years, so this amount is troubling, but doesn't sound a death-knell as a jump in income taxes did for the industry in the 1970's. Then, also, Japan, Inc. was widely-publicized as shutting off the United States innovation. At the end of 2008 there were nearly 7,500 venture capital principals in 882 firms off from 8,900 in 1,019 firms a year previously. The virtual dearth of initial public offerings of venture capital-backed firms bodes ill for the future. U. S. Venture capital-backed companies are the most innovative and wealth-producing entities in the world over the fifty years since the "invention" of venture capital. American competitiveness, wealth- and job-creation may well greatly suffer in the future as a result.

Update: venture capital fell to a 13-year low during the second quarter of 2009. Only 25 funds raised $1,700,000,000, down from last year's $4,600,000,000.

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