Private equity fundraising in the US continued apace as eighty five funds raised a total of US$42bn in Q2 2006. Thomson Financial and the National Venture Capital Association reported that 50 venture capital funds raised US$11.2bn, with 35 buyout and mezzanine funds raising US$30.8bn.
The reason the industry managed to reach such an unusually high number was because of the closing of a number of very large funds, the largest being Texas Pacific Group, which raised US$14bn for its fifth fund. Oak Investment Partners XII became the largest venture capital fund ever raised when it closed on US$2.56bn, and New Enterprise Associates 12 managed US$2.25bn.
“While this quarter’s venture capital fundraising explosion is largely driven by a few players, we can not pretend that this isn’t an incredible amount of money to invest,” said Mark Heesen, president of the National Venture Capital Association. “It reflects a philosophy that companies need more money and a longer runway to go public today and these larger funds are going to support these enterprises from their infancy until their exit, which they hope in many cases is an IPO. There are certainly smaller funds raised this quarter that will do very well leveraging an occasional public offering and a healthy acquisitions market for their companies. We continue to predict that this 2004-2006 fundraising cycle will come in at around US$70bn which is far less than the US$200bn raised in the 1999-2001 cycle.”
Twenty-eight early-stage funds raised US$5.3bn in Q2 2006, with 15 balanced fund raising US$4.9bn. Follow-on funds continued to dominate fundraising for venture, with just eight new funds being raised, which compares unfavourably to the 11 raised in Q1, of the 12 raised in the same time last year. There were 42 follow-on funds closed.
Buyout and mezzanine funds continued to bring in commitments at the traditional 3-to-1 rate over venture capital funds, and this was the second biggest quarter for US-based buyout and mezzanine funds- the first biggest being in 4Q 2005.
“While the number of buyout and mezzanine funds has steadily fallen over the past year, the dollar size continues to grow,” said Joshua Radler, assistant project manager at Thomson Financial. “It appears that the mega fund is here to stay and this liquidity will have a significant impact on the dynamics of corporate America and the US economy in the coming year.”