Venture Capitalists Are Raising Less Cash for Tech’s Next Big Thing

The venture capitalists who fuel Silicon Valley's tech ecosystem raised less cash last quarter, slowing the frenzied flow of dollars gushing into the industry.

Nationwide, VCs raised $5.3 billion in the third quarter of this year, a sharp drop from the $10.9 billion they raised the quarter before, according to the Venture Monitor report released Monday evening by PitchBook Data and the National Venture Capital Association. That means there's less capital available to fund the Bay Area's next Facebook or Uber. But experts say that's not necessarily bad, because it assuages fears of "bubbles" and inflation.

"I think it's great," said Nizar Tarhuni, a senior analyst at PitchBook. "I think it's healthy."

Despite months of talk of belt-tightening and cost-cutting at Bay Area startups, some analysts had speculated venture capitalists would set yet another fundraising record in 2017. But Tuesday's numbers tempered those expectations.

VCs raked in more than $40 billion last year from the pension funds, foundations, endowments and other limited partners that fund their investments -- a 10-year high for the cash-flush industry. But so far this year, VCs have raised a comparatively paltry $24.4 billion, and the number of VC firms closing a round of funding dropped to the lowest level in five years.

That's good news, Tarhuni said, because last year's break-neck fundraising pace isn't sustainable. There's already worry about inflated valuations of some "unicorn" companies -- private companies worth $1 billion or more -- and if VCs keep scooping up cash at unprecedented levels and pouring it into those unicorns, the companies' price tags will continue to go up.

"If you continue to raise capital, from a VC perspective, at that same pace, you start to really get nervous," Tarhuni said. "You start to see more artificial inflation."

Meanwhile, Silicon Valley startups also raised less money last quarter -- they brought in...

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