Explanation from Robert Cringley:
Right now, there is in the U.S. venture capital community about $25 billion that remains uninvested from funds that will end their lifespans in the next 12-18 months. If the VCs return those funds to investors they'll also have to return $3 billion in already-spent management fees. Alternately, they can invest the money -- even if they invest it in bad deals -- and NOT have to cough-up that $3 billion. So the VCs have to find in the next few months places to throw that $25 billion. They waited this long in hopes that the economy would improve and that technical trends would become clear so they could do their typical lemming-like jump off the same investment cliff as all the other VCs. Well, we're at the edge of the cliff, so get ready for the most furious venture investing cycle in history.
Explanation from Fred Wilson:
It is true that there is a huge "overhang" of venture money left over from the 1999/2000 fundraising binge. But that money can't go into early stage deals because those deals take 5-6 years to turn into realizations.
So this "overhang" is going into later stage deals. Look at $75 million going into Fastclick or $108 million going into Webroot. That's where the overhang money is going to go.
Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.