US VC fundraising falls to ten-year low

US venture capital fundraising fell by over 80 per cent to $6.9bn in 2002, while existing VC funds were downsized by around $5bn.

( New data from research firm Thomson Venture Economics and the National Venture Capital Association shows the total capital raised for US private equity funds last year was significantly lower than the total for 2001. However, the buyout picture was comparatively bullish compared to the venture capital side, where fund raising in real terms fell to its lowest level in over a decade last year.


A total of $31.6bn was raised for 64 private equity funds in 2002. This was down from the $59.8bn raised for 147 funds in 2001, confirming the decline since the market peak in 2000, when $86.8bn was raised for 180 funds.


According to the figures, 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.


The fourth quarter of last year was an especially slow time for venture capital fundraising, according to the data. Just 31 venture funds raised only $1.2bn. In the fourth quarter of 2001, 92 funds raised $5.5bn.


During the fourth quarter, $11bn was raised for 19 private equity funds raised. While this was an improvement over the third quarter, when $4.4bn was raised for 17 private equity funds, the improvement was largely due to the close of one mega-fund, JP Morgan Partners Global 2001 LP, on $7.7bn. Even that was significantly scaled back from its original target of $13bn.


According to the figures, growth opportunities in fundraising includes those funds concentrating on the life sciences sectors, as well as funds addressing sectors related to homeland security and military applications. At least three funds raised in the fourth quarter of 2002 are dedicated entirely to these sectors: Healthcare Ventures VII LP, Burrill Life Sciences Capital Fund LP, and 5AM Ventures.


The largest venture capital fund that closed in 2002, MPM Bioventures III LP, and its parallel funds, closed on $900m, is a life sciences fund that will invest internationally in all stages of companies in the biotechnology and medical technology fields, as well as private equity investments in public entities.