Tragedy of the VC commons

6 January 2010 By Robert Cyran Follow @rob_cyran

Investors have suffered 10 years of poor performance in venture capital. Natural shrinkage should raise returns for the survivors. Yet NEA just raised another $2.5 bln fund. This may not be good for the industry or NEA s backers.

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New Enterprise Associates has raised $2.5 billion for its 13th venture capital fund. The new fund represents an estimated 17 percent of all VC funding in 2009 and is the largest fund since 2007. It will focus on investments in information technology, energy technology and healthcare.

The median net return to limited partners in venture capital has been negative for funds established every year since 1998, according to Cambridge Associates. The returns for top quartile funds, such as those run by NEA, is positive.

Venture capital funds raised $8.4 billion in the first three quarters of 2009, according to Thomson Reuters and the National Venture Capital Association. They raised more than $25 billion in the same period in 2008.

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