National Venture Capital Association Issues Bleak Report; State of “Crisis”

The National Venture Capital Association (NVCA) just released some numbers for Q2, 2008 and they don’t look good. While venture capital might have seen a bit of a slowdown in the past quarter in Silicon Valley, the number of liquidity events for venture-backed companies has come to a screeching halt.

For the first time since 1978, there was not even a single IPO of a venture-backed company. This compares to five in the first quarter and 43 that happened in the first two quarters of 2007. The situation is being termed as a “crisis” by the NVCA.

In addition to a slowdown in the IPO market, there has been a fairly significant slowdown in the volume of Merger and Acquisition (M&A) deals as well. The release by Thomson/Reuters is below for your viewing, but what is important to consider is the significance of venture capital in Silicon Valley. Without exits and liquidity events, investment in venture capital will dwindle. That is in essence the life-blood of the valley in many ways. Much of the big run-up in San Francisco office rents, particularly in SoMA, Potrero, and in Silicon Valley (think Palo Alto, Mountain View) can be attributable to a great extent to venture financing. Venture financing not only is responsible for the creation of jobs at the start-ups, but generates an increase in demand for office space from accountants, law firms, and other professional service providers.

The majority of VC’s surveyed as part of this report indicate they don’t see the IPO window returning until at least 2009. This will undoubtedly translate to a continued weakening in office space rents and demand.

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