Saturday, April 17, 2010

Venture Capital Fundraising Experiences a Slow Start to 2010

"US venture capital firms raised $3.6 billion in the first quarter of 2010 from 32 funds, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 31% decline, by dollar commitments, compared to the first quarter of 2009 and 44% decline by number of funds. It also represents the slowest opening quarter since 1993.
              Fundraising by Venture Funds               -----------------------------------------------                                                      Venture                                Number of             Capital               Year/Quarter          Funds                ($M)               -----------------------------------------------               2005                    243            29,042.7               -----------------------------------------------               2006                    243            32,094.9               -----------------------------------------------               2007                    253            36,206.4               -----------------------------------------------               2008                    225            28,530.7               -----------------------------------------------               2009                    140            15,820.7               -----------------------------------------------               2010                     32             3,617.8               -----------------------------------------------               1Q'08                    75             7,184.8               -----------------------------------------------               2Q'08                    83             9,294.6               -----------------------------------------------               3Q'08                    63             8,497.4               -----------------------------------------------               4Q'08                    49             3,553.9               -----------------------------------------------               1Q'09                    57             5,250.9               -----------------------------------------------               2Q'09                    32             4,203.7               -----------------------------------------------               3Q'09                    29             2,296.8               -----------------------------------------------               4Q'09                    44             4,069.3               -----------------------------------------------               1Q'10                    32             3,617.8               -----------------------------------------------     

Source: Thomson Reuters and National Venture Capital Association

"There is no question that the bar has been raised for venture capital fundraising," said Mark Heesen, president of the NVCA. "Over the last two years, alternative asset allocations have declined and the exit market has suffered, putting venture firms in the unenviable position of communicating their value in an extremely challenging environment. Many firms have been waiting until the exit market improves before embarking upon their fundraising efforts. This wait has been considerably longer than many firms anticipated. Those firms that are successfully raising money today do have both a track record as well as vision for the future. As predicted, the next few years will see the industry consolidate with the strongest firms surviving."

There were five new funds and 27 follow-on funds raised in the first quarter of 2010, a ratio of over five-to-one of follow-on to new funds. The largest new fund reporting commitments during the first quarter of 2010 was Boston-based Longwood Founders Fund, which raised $50.7 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                             No. of     Follow-                                New         on       Total                    --------------------------------------                    2005          67        176        243                    --------------------------------------                    2006          56        187        243                    --------------------------------------                    2007          62        191        253                    --------------------------------------                    2008          50        175        225                    --------------------------------------                    2009          28        112        140                    --------------------------------------                    2010           5         27         32                    --------------------------------------                    1Q'08         12         63         75                    --------------------------------------                    2Q'08         23         60         83                    --------------------------------------                    3Q'08         14         49         63                    --------------------------------------                    4Q'08         11         38         49                    --------------------------------------                    1Q'09          5         52         57                    --------------------------------------                    2Q'09         11         21         32                    --------------------------------------                    3Q'09          9         20         29                    --------------------------------------                    4Q'09          8         36         44                    --------------------------------------                    1Q'10          5         27         32                    --------------------------------------     

Source: Thomson Reuters and National Venture Capital Association

The largest funds raised during the first quarter of 2010 were Battery Ventures IX, L.P. and Oak Investment Partners XIII, L.P which both saw $750 million in fund commitments during the quarter."

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