Preserving Relationships: VCs Stopped Making Capital Calls
Major limited partners (LPs), or investors in funds, asked their private equity (PE) partners to slow down investing and reduce the number of capital calls. Various LPs had engaged in a popular strategy of accumulating debt, and they did not have the cash on hand to honor every investment commitment after both the equity and debt markets collapsed. The number of first time investments fell by 65 percent from Q1 08 to Q1 09 as venture firms stopped making capital calls in order to preserve relationships with the LPs.
via venturebeat.com
This fact can go a long way towards explaining why VC investments were down do dramatically over the last few quarters. Remember: in the end, VCs just want to raised their next fund. Thus, they want to preserve relationships with the investors that can make that happen. Combine this with an above-average investment horizon for most VC investments and the situation does not seem so dire.