US Venture Capital fund raising declines in Q1 2001 while average fund size increases

May 15, 2001: According to the latest statistics published by Venture Economics and the National Venture Capital Association (NVCA), first quarter commitments to venture capital funds maintained healthy levels but decreased 32% from last quarter. The overall number of funds dropped considerably, as 95 US-based venture capital funds raised $16.1 billion, compared with 147 funds raising $23.8 billion in Q4 of 2000.

The average fund size was still quite large, at $169.5 million, representing the third highest average of the past two years. Thus, while institutional investors are still willing to commit money to venture capitalists, they’re being more selective. This is evident when considering the amount of capital that went to follow-on funds. Of the 95 funds raised this quarter, 66 of them were follow-on funds.

“Institutional investors continue to have confidence that venture capitalists will be able to find excellent opportunities and build great companies in the years to come. The investors allocating capital to venture capital firms understand the cyclical nature of the venture industry and believe that venture capital funds will continue to produce excellent returns over the long term,” said Mark Heesen, president of the National Venture Capital Association.

Quarter/ No of VC funds/ $bn’s of VC funds raised/ No of buyouts & mezzanine funds/ $bn’s of buyout & nezzanine funds raised

Q1, 1999/ 86/ 9.1/ 48/ 10

Q2, 1999/ 92/ 9.5/ 40/ 12.9

Q3, 1999/ 103/ 11.4/ 41/ 13.9

Q4, 1999/ 194/ 29.6/ 62/ 25.5

Q1, 2000/ 150/ 21.7/ 35/ 14.3

Q2, 2000/ 167/ 29.2/ 42/ 22.8

Q3, 2000/ 113/ 26.6/ 32/ 12.8

Q4, 2000/ 147/ 23.8/ 34/ 20.6

Q1, 2001/ 95/ 16.1/ 33/ 8.9

Source: Venture Economics/National Venture Capital Association

N.B. This chart does not include fund-of-funds, generalist private equity or other private equity funds.

With fewer funds being raised but capital levels still strong, six billion-dollar funds closed this quarter. Of the six funds, four of them were raised entirely this quarter. The largest of the three, Oak Investment Partners X, closed on $1.6 billion. The four funds represented 32% of the total amount committed.

Interest in early stage venture capital remains strong as $5.7 billion, or 36%, of the $16.1 billion raised went to funds with an early stage focus. In fact, there were 45 early stage funds raised in the first quarter, which was the second-highest number of all stage categories. Meanwhile, venture firms raised $7.2 billion in balanced stage funds, representing 45% of the total capital raised.

Quarter/ No of first time VC funds/ No of first time buyout & mezzanine funds

Q1, 1999/ 32/ 16

Q2, 1999/ 27/ 10

Q3, 1999/ 38/ 10

Q4, 1999/ 59/ 12

Q1, 2000/ 33/ 6

Q2, 2000/ 56/ 13

Q3, 2000/ 37/ 7

Q4, 2000/ 51/ 8

Q1, 2001/ 29/ 7

Source: Venture Economics/National Venture Capital Association

On a regional basis, the majority of capital went to Greater New York-based venture capital funds, as 21 of them raised $4.8 billion. The second highest amount of capital went to the Northern California region, as 27 funds raised $4.7 billion. The New England region raised the third-highest amount of capital, $2.4 billion through 17 funds. These three regions represented 74% of the total amount raised throughout the United States this past quarter.

Buyout and mezzanine funds saw a much greater decline in fund raising this quarter. Thirty-three funds raised $8.9 billion, a 57% decrease from last quarter, when 34 funds brought in $20.6 billion. The amount capital raised this quarter was the lowest since the third quarter of 1997. A slowdown in fund raising could be attributed to the fact that buyout firms have yet to invest the record setting amount they raised in 2000 ($70.5 billion).

There were only three billion-dollar buyout funds this quarter, a considerable drop-off from last quarter, when nine made the list. The largest fund of the quarter came from Madison Dearborn Partners, whose Madison Dearborn Capital Partners IV, LP, closed on $1.8 billion, bringing the total of the fund to $3.8 billion. This single fund represented 20% of the total amount of capital buyout and mezzanine funds raised this quarter.