Venture Capital Funding in the Middle of the Year 2011: Are We Back to Pre-Crisis Boom Levels?

Abstract

The 2009 financial crisis had a severe impact on the venture capital market. This brief article summarizes the empirical evidence as regards the effect of the financial crisis on venture capital financing. Further, the article analyzes, whether now, in the middle of 2011, the venture capital market is back to its pre-crisis boom levels. Using large-scale data from the US Internet industry, we find that the number of funding rounds and the average amount of funds raised are back to pre-crisis boom levels and the next phase of investor irrational exuberance may have already started. Another finding concerns the variation in the funds raised per funding round. It seems that the financial crisis has favored the development of “winner-take-all” markets in the US Internet industry. Those ventures that have survived the financial crisis such as Twitter or Facebook are now collecting even larger sums of money than they probably would have collected if the financial crisis would not have occurred.

Keywords: financial crisis, venture capital, after-crisis, irrational exuberance, CrunchBase

JEL Classification: E32, G01, G24