Fund-raising in Q1 on par with prior quarters

Venture capital fund-raising plodded along in the first three months of the year, with 51 funds raising just under $4.3 billion, up a smidgen from the prior quarter, according to a preliminary tally by PE Week.

The Q1 numbers were down significantly from year-ago levels, when venture funds raised $6.6 billion. But the drop last quarter appears to be due more to top VCs reducing fund sizes than to a diminishing appetite from limited partners for venture investments, says Kelly DePonte, a partner with Probitas Partners, a San Francisco-based private equity fund placement firm.

“As far as the fund-raising market for capital, things are at a pretty steady state,” he says. “There hasn’t been a surge; there hasn’t been a dramatic decline.”

If he were to describe the fund-raising climate in a single word, DePonte says that it would be “sustainable.” Particularly in early stage funding, there’s only so much money the market can deploy well. From that perspective, he says, a surge in fund-raising “would probably be bad news.”

Definitive Q1 fund-raising numbers are due to come out this week from Thomson Financial (publisher of PE Week) and the National Venture Capital Association. A final tally for the quarter is likely to show slightly higher fund-raising totals.

Several name-brand firms closed big funds during the quarter, including MPM Capital (which raised $550 million in the quarter), Venrock Associates ($520 million), MissionPoint Capital Partners ($335 million) and Charles River Ventures ($285 million). Draper Fisher Jurvetson (which raised more than $400 million last quarter) officially reached its $600 million target for fund IX in early April, according to a regulatory filing, although one LP source said that the fund may reach $620 million (see story on page 4).

MPM’s closing was a long time in the making. Its MPM BioVentures IV fund made its first investment in June 2006 and has been raising money for more than a year. Returning LPs GE Healthcare Financial Services, Itochu Corp., Kauffman Foundation and Scottish Widows Investment Partnership provided more than half the committed capital, according to MPM.

Norwalk, Conn.-based MissionPoint, a newcomer, plans to make private equity investments in the clean energy and environmental finance sectors. The firm targets initial investments of $10 million to $30 million, focusing on expansion-stage financing, management buyouts and corporate joint ventures. It lists one portfolio company on its website, solar energy service provider SunEdison. The firm is chaired by Mark Schwartz, former president and CEO of Soros Fund Management.

CRV’s closing of its 13th fund brings the 37-year-old firm’s total capital under management to about $2.1 billion. With the new fund, CRV will continue to invest in early stage technology ventures, spanning software and services, media, communications and data center infrastructure.

Fund-raising rates would almost certainly have been higher during the quarter, DePonte says, if venture capital firms with strong track records had sought larger sums. Today, he says, limited partners commonly find they can’t get in on hot new funds unless they have invested with the managing firm previously.