VC fund-raising slows in Q3

The number of venture capital firms raising funds, and the dollars they raised, declined in the third quarter, according to Thomson Financial (publisher of PE Week) and the National Venture Capital Association.

In the third quarter, 59 venture capital firms raised $6 billion, compared to 83 funds that raised $9 billion in the second quarter. Through the first nine months of 2007, VC firms have raised nearly $21 billion, or about 80% of the volume raised during the same period of 2006.

Most of the funds raised in the third quarter were early stage. A total of 26 early stage-focused funds raised more than $903.3 million, including Technology Partners, which raised $300 million for its seventh early stage fund. In addition, 16 balanced stage-focused funds raised $3.4 billion, including Battery Ventures, which raised $750 million for fund VIII.

Nine expansion stage-focused funds raised $613.2 million in the third quarter. Leading the way was Radford, Va.-based Third Security, which raised $250 million for New River Management V.

The spread between follow-on funds and first-time funds decreased in the third quarter. However, the ratio of follow-on to new offerings exceeded 6 to 1. Only eight new funds were raised in the quarter, compared to fifty-one follow-on entities, which marks the smallest number of new funds raised since the second quarter of 2003.

However, the total funds raised by new funds amounted to $553.7 million, which exceeds the dollar volume in five of the last 12 quarters.

The largest fund raised in the quarter was Battery Ventures VIII, followed by Bessemer Venture Partners, which raised $625 million for fund VII. Mohr Davidow Ventures raised the third largest fund in Q3, when it closed fund IX, with $580 million.

“We expect the number of venture capital firms raising funds to remain very stable and perhaps even decline during the next year,” says Mark Heesen, president of the NVCA. —Alastair Goldfisher