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US fund raising gets weaker

Private equity and venture capital fund raising is hard, everybody knows this but if anyone is in the slightest bit of doubt they should check out Venture Economics/ NVCA US venture and buyout/ mezzanine fund raisings so far this year. The picture’s bleak, the bottom has fallen so far out of the market that the figures are considerably lower than those for 1997, which was before the number of private equity and venture capital funds in the market exploded out of reasonable proportion.

Venture alone looks like this. In 1997 there were 240 funds raised worth $18.1 billion and by 2000 this had peaked to 632 funds raised worth $97 billion. Last year the drop started with a still healthy 329 funds raising $35.8 billion but by end of Q3 2002 just 113 funds had raised $5.5 billion with no end of year surge in fund raising expected.

For buyout and mezzanine funds the explosion was less marked. In 1997 there were 152 funds raised worth $54.5 billion and by 2000 this was at 176 funds (having peaked at 182 funds in 1998) with a value peak of $86.7 billion. Last year saw a similar number of funds raised – 180 – but the value of funds raised had dropped back to 1997 levels at $57.7 billion. Just 55 funds have been raised to end of Q3 2002 worth a mere $17.7 billion.

If things continue next year and in 2004 as they have during 2002 – and there are no indications that they won’t – the wall of money that everyone is talking about looks set to gradually tail off. (Some $100 billion of dry powder, which is roughly expected to be placed $50 billion in the US, $30 billion in the UK and $20 billion in continental Europe, amounts to the wall of money.)