Zombie VC Firms Can Be an Entrepreneur's Nightmare Entrepreneurs, beware: When a VC firm shuts down, the obligation to deliver a return on the investment rarely goes away.

If you don't see any activity for, say, the last five years, be wary. You could be looking at a firm that's dying a predetermined slow death.

Picture this: The group that invested $2 million in your startup notifies you that it's shutting down. You may think you're off the hook in terms of providing a return on their investment, but in fact, the opposite is true. After all is said and done, the defunct firm's investors still expect to
see a return on their investment.

Sadly, this scenario happens more often than you might think. The most recent Silicon Valley Venture Capitalist Confidence Index, a quarterly report by University of San Francisco professor Mark Cannice, notes that more than 400 venture capital firms are now either inactive or have quietly gone out of business. Another source, FLAG Capital, claims that last year fewer than 100 VC firms were active (meaning the firms made at least four investments or deployed $4 million in a year). By FLAG's count, that's down from 441 firms in 2000. Ouch.