Venture Capital Fundraising Declines Further In 2010 PDF Print E-mail
Monday, 24 January 2011 12:13

Fewer Firms Raising Smaller Funds Remains the Trend

Thirty-five US venture capital funds raised nearly $3 billion in the fourth quarter of 2010, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 6% decrease, by dollar commitments, compared to the third quarter of 2010, which saw 49 funds raise $3.2 billion during the period. For full year 2010, 157 venture capital funds raised $12.3 billion, the fourth consecutive year of declines and the slowest annual period for venture capital fundraising since 2003.

Year/Quarter
Number of Funds
Venture Capital ($M)
2005
234
30,759.6
2006
235
31,860.9
2007
237
31,205.0
2008
213
26,412.2
2009
150
16,314.9
2010
157
12,304.2
4Q'08
49
2,807.9
1Q'09
57
4,942.5
2Q'09
39
4,995.2
3Q'09
32
2,310.3
4Q'09
47
4,066.9
1Q'10
46
4,007.0
2Q'10
52
2,130.3
3Q'10
49
3,177.1
4Q'10
35
2,989.9
Source: Thomson Reuters and National Venture Capital Association

 

“Given current conditions, a limited number of venture firms will be able to successfully raise new funds in 2011 and many of these will be smaller than previous funds raised,” said Mark Heesen president of the NVCA. “Yet, the continued downsizing of the venture industry has positive implications for investors and entrepreneurs. An agile venture capital model likely translates into more capital efficient and fewer duplicative deals in the IT arena as well as less capital intensive deals in the life science and clean technology arenas.”

“The most innovative and efficient companies will continue to be funded by the venture community,” continued Heesen. “It is important to reiterate that when it comes to venture capital returns, history has shown that often ‘less is more.’ As the year progresses and the exit market continues to improve, we expect better performance from established funds as well as from recently raised funds which have the opportunity to invest in great companies at a time when valuations are more reasonable and the economy as a whole points upward.”

There were 24 follow-on funds and 11 new funds raised in the fourth quarter of 2010, a ratio of 2.2-to-1 of follow-on to new funds. The largest new fund reporting commitments during the fourth quarter of 2010 was Raleigh, North Carolina-based NovaQuest Healthcare Investment Fund, L.P., which raised $177 million in its inaugural fund. A “new” fund is defined as the first fund at a newly established firm, although the general partner of that firm may have previous experience investing in venture capital.

 

VC Funds: New vs. Follow-On
No. of New
No. of Follow-on
Total
2005
54
180
234
2006
63
172
235
2007
71
166
237
2008
64
149
213
2009
43
107
150
2010
52
105
157
4Q'08
17
32
49
1Q'09
10
47
57
2Q'09
14
25
39
3Q'09
13
19
32
4Q'09
14
33
47
1Q'10
16
30
46
2Q'10
19
33
52
3Q'10
18
31
49
4Q'10
11
24
35
Source: Thomson Reuters and National Venture Capital Association

 

The largest fundraising during the fourth quarter of 2010 was from Menlo Park, California-based Andreessen Horowitz Fund II, L.P. which raised $650 million, followed by Palo Alto, California-based Meritech Capital Partners IV, L.P., which raised $390 million.