NEW YORK – Maybe the current venture capital fund-raising malaise shouldn’t so much be blamed on the jittery public markets, but rather on a cash drain from investor wallets following massive commitments made during the third quarter.
That’s the gist of a report released in late November by Venture Capital Journal publisher Venture Economics, in conjunction with the National Venture Capital Association.
According to the study, 108 U.S.-based venture funds received third quarter commitments totaling of $27.9 billion.
Most notable among the big winners were TA Associates and New Enterprise Associates (NEA), both of which held final closes on $2 billion funds. The success of these two firms underscores a prevailing third quarter trend of established industry players raising tremendous sums at the expense of smaller and newer firms, many of which have been hung out to dry by the limited partner community.
Indeed, the overall amount of capital raised last quarter was higher than any similar period this year, but far fewer firms actually put cash in the bank. During the first quarter, 124 firms received commitments for a total of $17.3 billion, while 159 investment houses got paid during the second quarter for a total of $24.9 billion.
The mega-funds like TA Associates and NEA also had a major impact on the average amount raised per fund, which hit a monstrous $259.1 million during the third quarter. According to the study, the third quarter’s eight $1 billion-plus vehicles accounted for approximately 44% of the total capital raised.
“The fact that money is flowing to existing firms suggests that limited partners are being more cautious about their allocations to new venture funds,” said Venture Economics’ Jesse Reyes, in a prepared statement.
Most of the funds receiving commitments were based not surprisingly in Northern California (31 funds raised over $12 billion) and the Northeast (34 funds raised over $8 billion). In all, those two areas were bathed with around 71% of all total LP commitments.
One interesting note is that the Venture Economics study does not paint a rosy picture for the entire private equity industry. In a separate survey, the group found that buyout fund commitments declined by 27% from last year, with 24 such vehicles raising $13.3 billion.
As with the VC experience, however, average fund size was up from the second quarter’s $433.1 million to $554.8 million in the third quarter. This was largely due to a quarter of $1 billion-plus funds like the $5.2 billion Goldman Sachs Capital Partners 2000.