US firms continue VC cutbacks

Texas-based Sevin Rosen Funds has become the latest US venture capital firm to cut its fund back, from $875m to $600m.

(PrivateEquityCentral.net) US-based early-stage technology investor Sevin Rosen Funds has become the latest large venture capital firm to slash an investment fund, reducing the size of its eighth fund by nearly a third, to $600m.

 

According to the Dallas Business Journal, Sevin Rosen still anticipates investing in 15 new companies annually through the life of the fund, which is expected to wrap up in mid 2004. But the firm now believes it will only need to invest $10m through the life of each portfolio company, rather than the $15m it anticipated when the fund closed.

 

When Sevin Rosen closed the fund in November 2000 it was nearly double the size of the firm’s previous fund, which was $480m.

 

Lower management fees won't have a material impact on Sevin Rosen’s finances, John Jaggers, a general partner at the firm, told the Dallas Business Journal, partly because it has management-fee income from other, previous funds, and partly because it began cutting expenses once it realized a reduction in capital under management might become necessary.

 

Sevin Rosen primarily focuses on early stage ventures in communications, e-Business infrastructure and solutions, and Internet-enabled business models. The firm typically invests $4m to $15m over the course of each project. Prior to cutting Fund VIII, Sevin Rosen had $1.9bn under management.

 

Sevin Rosen’s decision was in line with a trend throughout the venture capital industry that was confirmed this week with the release of new figures by research firm Thomson Venture Economics and the National Venture Capital Association.

 

The figures showed 108 venture funds raised $6.9bn last year. By contrast, 331 venture funds raised $40.7bn in 2001, and 653 funds raised $106.9bn in 2000.

 

But last year's numbers look even worse when the fact that 26 venture capital firms – including Walden International, Meritech, Austin Ventures, Charles River Ventures, Accel Partners, Kleiner Perkins Caufield & Byers – downsized their funds by approximately $5bn in 2002. Three firms – Mohr, Davidow Ventures, Atlas Venture and Redpoint Ventures – have sliced capital from their funds twice. When this fact is taken into account, net fundraising for 2002 was only $1.9bn, a lower level than was achieved in 1991 when $2bn was raised for just 44 funds.