Good News on the Venture Capital Front

By at 27 September, 2019, 2:51 pm

by Raymond J. Keating-

When I testified before in the U.S. Senate last year on legislative proposals to increase access to capital, one of the forms of investment that I highlighted was venture capital.

As I noted at the time, “While not an option for most start-ups or very young firms, venture capital investment is an important avenue for innovative firms to raise capital for growth and expansion.”

While certainly having its ups and downs, the story on venture capital after the last recession generally was about growth. And the growth in venture capital investment has generally improved since that appearance in the Senate.

According to the latest data from the PwC/CB Insights Money Tree Report (see the chart below), venture capital investment plummeted from $119.8 billion in 2000 to $50.7 billion in 2001 and $15.8 billion in 2002. Growth then resumed, with VC investment registering $31.5 billion in 2007.

With the recession, the decline resumed, falling to $21.8 billion in 2009. The early recovery meandered, with VC investment coming in at $33.1 billion in 2012.

Growth stepped up, once more, especially in 2014 and 2015 ($78.3 billion). There was a decline to $63.2 billion in 2016. But growth reignited in 2017 and 2018 – registering $76.8 billion in 2017 and jumping to $116.2 billion in 2018. That was the first time since 2000 that annual VC investment went above $100 billion.

Data Source: PwC/CB Insights MoneyTree Report

The first two quarters of 2019 tally up to $54.9 billion. That’s off from the last two quarters of 2018 (totaling $68.4 billion) but runs ahead of the first two quarters of 2018 ($47.8 billion). Either way, barring a major drop off in the third and fourth quarters, it looks like annual VC investment will top $100 billion, once again.

The venture capital investment news has been good for the past two-plus years. However, some questions do arise with the decline in the first two quarters of this year, which tracks with poor business investment data in the second quarter GDP numbers. Again, VC investment matters for innovative firms looking to expand, and therefore, for the overall economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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