Venture Capital Outlook 2013 (Part 3 of 3: My Predictions for 2013)

In my prior two posts here and here, we’ve reviewed some important trends from 2012 and put the spotlight on some key 2013 predictions made by CEOs and VCs.  Now it’s my turn to make some predictions about the venture capital industry and funding environment in 2013:

1.  More Dollars and Funding Rounds. 

Companies will raise more total dollars and close more funding rounds (including more Series A rounds made by venture capital firms) than in 2013, despite an expected contraction in dollars raised by VCs and investment terms that favor the VCs over the companies in which they’re investing.  But the increase in dollars and rounds will not be huge – better than in 2012, but no records will be broken.

2.  More Buying and Selling of Venture-Backed Companies. 

That increase in dollars raised and number of funding rounds will be fueled in part by decent exit returns earned in a more active M&A environment for venture-backed companies.

3.  Better IRR for VC Funds. 

VC funds’ typical internal rate of return (IRR) will increase by one percentage point over 2012’s IRR number of 5.3%.

The three predictions above rest on two related predictions: first, that the overall economy will continue to experience a slow but steady upturn; and second, that Washington will manage to work its way through the debt-ceiling, spending, and sequestration debates without pushing the economy out the plane door without a parachute.