LPs released from $3bn of US venture commitments

Warburg Pincus’ recent close on $5.3bn masks a continuing downturn in US venture capital fundraising in 2002, as LPs are freed from commitments totalling $3bn.

US firms raised a total of $4.6bn for venture capital investments in the second quarter of 2002, an increase of $1.1bn on the final quarter. Figures published by VentureWire show a total of 30 venture capital funds announced closings in the second quarter, raising an average of $150m per fund.

However, the figures are distorted by Warburg Pincus closing its eighth fund during the period. The fund, which will invest across a broad range of stages including venture capital, expansion finance and buyouts, raised an additional $2.5bn in Q2 to close at $5.3bn.

The most telling aspect of the quarter’s fundraising total was that while $4.6bn was being raised for investment, $3bn was going the other way as firms continued to release LPs from commitments to large venture capital funds.

In June US house Walden International and Worldview Technology reduced their respective $1bn funds by 25 per cent. In May technology venture capital firm Benchmark Capital cut the total size of its European fund from $750m to $500m.

Minus the Warburg Pincus closing, US VC fundraising in Q2 saw a similar level of funds closing to Q1 but the amount raised has fallen quite sharply. The average fundraising for Q2 stands at just over $70m against a Q1 average of $110m.

The majority of the second quarter funds remain committed to early-stage investing. Two thirds of the funds, representing $1.3bn in capital, will focus primarily on investing in start-ups. Another five funds will make early-stage investments as part of a broader investment strategy.

After Warburg Pincus, the other top five second quarter funds were Alloy Ventures 2002 Fund with $300m; RRE Ventures III fund ($225m); Carlyle Asia Venture Partners II ($170m); and MVM International Life Sciences Fund II ($146m).

According to Ken Andersen at VentureWire, new funds are fortunate in being able to sidestep the difficulties facing recent oversized funds. 'These new funds have the benefit of a clean slate. Without a portfolio of struggling companies to tend to, partners can concentrate on finding the best new deals.'