Venture Capital Fund-Raising Continues to Show Signs of Weakness

Venture capital fund-raising was cut in half after the 2008 recession and has yet to rebound in both the U.S. and Europe, according to new statistics from Dow Jones. 32 U.S. venture funds raised $2.2 billion during the third quarter of 2011, a 24 per cent drop from the same period last year when 40 funds raised $2.9 billion. Through the first three quarters of the year, U.S. venture fund-raising was up 9 per cent but more than half of the $10.6 billion collected for 90 funds was committed during the first quarter.

The situation is no better in Europe, where venture capital fund-raising is on pace to set another record low, according to Dow Jones. 25 funds garnered $1.8 billion during the first three quarters of this year, which reflects a 31 per cent drop in capital committed from the same period in 2010. In the third quarter, four funds raised $424 million.

U.S. Early-Stage Funds Suffer as LPs Lean Toward Multi-Stage Strategies: In the U.S., limited partners continued to favor multi-stage strategies and shy away from early-stage funds. Early-stage fund-raising dropped 41 per cent as 52 funds collected $2.1 billion in the first three quarters. Multi-stage fund-raising was on par with the same period last year as $5 billion was committed to 28 funds.

Ten late-stage funds raised $3.5 billion during the first three quarters, more than triple the $1.1 billion raised for eight funds a year ago.

European LPs Focus on Early-Stage Funds: After closing $125 million for three early-stage funds during the third quarter, the total raised for European venture funds during the first nine months was $1.2 billion for 18 funds, a 14 per cent decline in capital committed compared to the same period a year ago. Multi-stage funds fared worse, as seven funds raised $585 million in the first three quarters, a drop of 47 per cent in capital committed over the same period last year.

Scott Austin (Editor, Dow Jones VentureWire): As limited partners continue to show a strong preference for investing with only the most prominent firms, the number of funds and the amount of capital committed have shrunk. If this trend continues, entrepreneurs will face greater competition for capital, and other investors, such as angels and corporations, may find opportunities to invest in deals that, traditionally, would have been done by venture firms.


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