VC fund-raising nosedives in Q1

Raising a venture fund is never easy, but with limited partners on lockdown, it’s become tantamount to trying to ice-skate uphill.

“I’ve raised six venture funds and the market’s never been tougher,” says Immanuel Thangaraj, a managing director at Essex Woodlands Health Ventures.

That may sound odd coming from a VC whose firm recently announced that it had raised $900 million for its eighth fund. But the truth is that Essex Woodlands had raised the bulk of the fund, or $800 million, last summer. Since then, the stock market has tumbled and the firm abandoned its $1 billion target.

Essex Woodlands isn’t the only firm feeling the pinch. U.S.-based venture firms raised about $4 billion for 31 funds in the first quarter, down 44% from $7.1 billion for 71 funds in Q1 2008, according to preliminary data from Thomson Reuters (publisher of PE Week). Private Equity Analyst reported last week that U.S. venture firms raised $2.4 billion for 23 funds, down 64% from $6.7 billion raised by 57 funds in Q1 2008. Thomson Reuters and the National Venture Capital Association are scheduled to release official Q1 fund-raising data on April 13.

Firms with track records of successful exits seem to be the only ones that were able to swiftly raise money in the current environment—or at least firms with a few funds under their belts. Charles River Ventures last quarter raised $320 million for its 14th fund. Trinity Ventures raised $276 million for its 10th vehicle and Bessemer Ventures added $350 million to its seventh fund.

The largest fund-raiser for the quarter was August Capital, which raised $650 million for its fifth fund. Index Ventures also raised a sizeable fifth fund, putting together $441 million from limited partners.

The hardest hit venture firms are likely to be the ones without a well-established track record. But at least some investors seem willing to take a measured risk.

Consider Sail Venture Partners. The energy-focused cleantech investor launched its first fund in 2006, raising $60 million from limited partners anxious to gain exposure to the cleantech business.

The firm has yet to have an exit. So far, Sail has backed interesting and promising companies such as SNTech, a Korean company that is working on a more efficient electric motor, and Enerpulse, a startup that’s making fuel efficient spark plugs.

Fund-raising is slow for everyone right now, but Sail has managed to raise more than $60 million toward a fund that might reach $250 million, according to regulatory filings. And most of the money raised so far came during the first quarter.