Additionally, frozen credit markets and the shrinking stock portfolios of institutions have made it harder for VCs to raise funds. For example, in Q3 20 new VC funds raised $492.21 million. This compares to 40 new funds with $3.02 billion in second quarter 2008 and 13 funds with $1.32 billion in third quarter 2007.
Considering the declining trends in exits, capital commitments and confidence, it appears that the slowing momentum in China's venture industry is paralleling the current state of the venture industry in Silicon Valley, where I found that in Q3 VC confidence has also marked a multi-year low along with a decline in exits, capital commitments, and investments.
What happens next? Well, Chinese economic growth remains strong, albeit reduced from recent years. Nevertheless, with the US and Europe sliding into recession and some emerging economies facing potentially worse, I expect a volatile time for venture-backed enterprises in China and the US in the coming months.
Don't discount potential opportunities, though -- enterprises that can find a way to endure the current turbulence will be well suited to thriving once there is a recovery, thanks to less competition and pent-up demand. Firms and their venture backers must find a way to navigate the current turmoil, and swing at where the ball will be several years from now, rather than where it is now.
Mark V. Cannice, Ph.D. is an Associate Professor of Entrepreneurship at the University of San Francisco School of Business and Management and is the Executive Director and Founder of the USF Entrepreneurship Program. His research deals primarily with venture capital, entrepreneurship, and technology management. You may find the historical Silicon Valley and China VC Confidence Reports at www.Cannice.net.
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