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Cautiously Optimistic: VC Fund-raising on the Rise in Q2

Venture capital fund-raising volume experienced a modest increase during the second quarter, according to new data released today by Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association.

The news is being greeted with cautious optimism by many venture capitalists, including those who currently are pitching new funds to potential limited partners.

“It’s reassuring to know that someone is committing to venture funds right now,” says an early-stage investor, who cited SEC restrictions in requesting anonymity. “LPs seem to have been very stingy with their money, but maybe this means they’re willing to open up the purse-strings a bit.”

The new figures show that 32 U.S.-based venture funds secured $1.63 billion in gross commitments during Q2 2003, which is up 25% from the $1.22 billion raised by 28 U.S.-based firms during the first quarter.

Most of the increase is attributable to $395 million in new commitments for the eleventh fund from Sequoia Capital. That vehicle was significantly oversubscribed, and the firm may allow certain LPs to increase existing commitments to offset the $8 million it lost by recently evicting FOIA-friendly University of Michigan.

Partners at Sequoia did not return calls requesting comment on this story.

Other significant second quarter fund-raising winners included: The Edgewater Funds, which secured $196 million for its fourth late-stage fund; Lighthouse Capital Partners, which raised $178 million of its $366 million fifth fund in Q2; and Valhalla Partners, which netted a $108 million first close on its inaugural effort.

Other firms to raise at least $100 million included Acorn Ventures, Forward Ventures and Inverness Capital Partners.

Notably absent from the quarterly tally is ComVentures, which had been hoping for a June close on its $350 million-targeted sixth fund (PE Week 5/26/03, page 1). Sources say that the firm postponed its final close until later this year, after several existing investors declined to participate in the new offering.

When Q2 venture disbursement data was released last week, many wondered whether or not the recent bump in deal activity could be sustained over the next few quarters. In terms of fund-raising, on the other hand, it seems almost certain that the numbers will continue to rise.

Not only should firms like ComVentures and Alta Partners hold final closes on new vehicles, but New Enterprise Associates (NEA) recently launched its eleventh fund with a $1 billion target capitalization. If successful, the new NEA offering would come in around 56% smaller than its predecessor, but nonetheless would be the first VC fund in over two years to raise at least $1 billion.

“The cap will probably be a bit more than $1 billion, although we’d certainly be happy to meet our target,” says Nancy Dorman, a Baltimore-based administrative general partner with NEA. “We’ll probably hold a first close in November.”