The End of the Affair?

The proximity of Valentine’s day provides suitable context for the rash of industry love letters proclaiming the resurgence of the venture capital industry. Venture professionals, media reports tell us, are starting to ramp up their investments, see a bright 2010, and increasingly believe that venture is back, baby.

Not so fast. As the venture industry reforms, it will take some time before one can accurately gauge its shape.  As with any market consolidation, the rich will likely get richer: the list of the most active VCs in 2009 is a familiar litany of names (note especially Sequoia with 42 investments in the year after proclaiming “RIP Good Times“).  And NEA just raised a monster $2.5 billion fund, suggesting that the Sand Hill Road icons will endure.

But at the same time, and far harder to document, is the demise of a great silent mass of middle funds — particularly those located in between the coasts and with fund sizes between $200-600 million.  Many VC firms are receiving Dear John letters from their LPs, as overall fund raising fell 55% last year.

2010 can still see venture romance spring anew, but if you are looking for capital, expect a few promising dates where your venture partner then takes a few days break to think about things, and never comes back.