Major ‘shakeout’ in VC industry, credit markets crunched: Just the tip of a financial ‘iceberg’?

BVWireIssue #60-2
September 19, 2007

Recent layoffs by commercial lender CapitalSource, Inc. are just the “tip of a giant iceberg,” according to a new posting at PEHub (Sept. 14, 2007).  Executive recruiters are saying “to expect many more—and larger layoffs—in the loan markets, and in a variety of other industries that rely on leveraged buyouts,” reports editor Dan Primack.  “It could become one of the fall’s largest financial stories.”

This dire prediction comes at the same time as a “major shakeout” in the Venture Capital industry.  A recent analysis by OVP Venture Partners first takes a look at the VC firms still registered in the market: This number has fallen only 15% since 2006.  But then it looks at the number still active in the market—and there were only 597 venture firms that made at least one new deal in 2006, compared to 1,156 six years ago.  “This is more like a 50% drop,” says OVP.  “We think that is the big, so far unwritten, story. The U.S. venture industry has been cut in half.  That certainly qualifies as a major shakeout.”  Primack agrees, “The industry is becoming unsustainable, and it shows.”

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