Venture Capital Overfunded?

Much has been written recently about how the VC industry is over-funded and needs a macroeconomic correction in the aggregate amount of money invested in funds in order to return to a healthy state. This is one of the factors cited as driving down average industry returns. The idea is simple – there is too much money chasing too few good deals which has the result of causing investment terms to be less VC favorable and causing companies to be funded that should not have been. The solution suggested by many is that a right-sizing is in order, with many predicting that less money will come into the space in the future (despite CalPERS apparent assertions to the contrary).

Why then do the vast majority of VCs who were interviewed in a recent Deloitte survey believe that their next fund will be the same size or larger?

Do VCs think that the industry as a whole needs to downsize but have an overly optimistic view of the appeal and potential of their own fund (sort of like most people hating Congress but loving their representative)? Or do VCs not believe that the market segment is over-funded? Or is it something else?

We’d love to hear what you think.