In Q1, the big got bigger and the divide between big and small venture managers grew larger than ever. The covid-19 pandemic may further accelerate this trend.
The US industry was able to raise $20.1 billion across 62 funds in Q1, according to data from PitchBook. This total includes more than 10 megafunds that each collected $500 million or more. Due to these large vehicles, the median fund size climbed to $100 million last quarter.
This marks a big jump from the $70 million median recorded in 2019. The market hasn’t seen a median fund size at or over $100 million since 2007, when it stood at $133 million.
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In Q1, New Enterprise Associate’s 17th flagship closed on $3.6 billion, Mayfield Ventures collected $750 million for two vehicles and Battery Ventures grabbed $2 billion for a pair of megafunds.
In contrast, first-time fundraising almost fully dried up last quarter as it collected less than a third of the capital NEA raised for its single fund.
About $1.1 billion was raised across nine of these vehicles, which represented less than 5 percent of the total capital raised in Q1 and less than 14 percent of the funds that wrapped up last quarter.
While PitchBook predicted that the median fund size would hit $110 million in 2020, the coronavirus may accelerate this as it disrupts LPs ability to perform due diligence on new managers, said Hilary Wiek a senior fund strategies analyst at PitchBook.
“We absolutely see it across all of these different asset classes,” Wiek said. “We are definitely hearing that the name-brand ones are not having any problem closing funds. Emerging managers are highly concerned about even raising a fund.”
A recent report from PitchBook highlighted that many of these smaller funds also rely more on family offices and high-net-worth individuals as LPs which may pull back more than often larger institutional investors who have funding mandates.
Wiek said that as LPs are hesitant to commit to a manager without meeting face to face this may result in the legacy managers getting bigger while smaller and newer funds struggle.
“Money is going to flow to best performers as well as the name brands which are sort of the biggest vehicles by default,” Wiek said.
Because of this, it has been largely business as usual for many large managers as multiple megafunds launched in Q1. Flagship Pioneering launched its seventh origination fund with a $1.1 billion target in March and RTP Global launched a new early-stage vehicle the same month with a $650 million target.
“I would expect that the second and third quarters will be interesting this year to see if things are slowing down,” Wiek said.