Red Herring reports that venture capital fundraising is down 44% in the US, but up in Europe. While this may sound alarming, VC activity in the US is down for a couple of reasons.
First, Sarbanes-Oxley has put a wet blanket on public offerings and this is having an impact on venture capital financing. VCs need exit options, and IPOs have slowed way down due to the reporting requirements imposed by Sarbanes-Oxley and the costs that they create for public companies (over $500,000 a year in additional accounting costs for even small public firms). Valuations of VC funded deals in the US are up. The market has become more selective in its investments, which is a positive long-term trend.
Second, there is already a large surplus of liquid assets in US venture capital firms, so there is a reluctance to pour in more money right now. It is also important to keep in mind that the US still raises over three times as much as Europe, even with the drop in US fundraising.
