Thank goodness for the fund-raising activity of Menlo Ventures. Without the Menlo Park, Calif.-based venture firm, pessimistic fund watchers would be shouting that the sky is falling.
That’s because fewer firms raised money in Q2, and they only barely raised more than their colleagues did in Q1, according to Thomson Venture Economics (publisher of VCJ) and the National Venture Capital Association. A total of 43 venture firms raised about $6 billion in Q2, compared to 61 firms bringing in $5.7 billion in Q1.
But the numbers are skewed by Menlo Ventures, which closed Menlo Ventures X with $1.2 billion during Q2. Without Menlo Ventures in the mix, VC funding for Q2 drops nearly 20 percent.
Investors, however, are not too concerned with the state of the market as it pertains to quarterly fluctuations, says Walter Kortschak, a managing partner with Summit Partners, which closed Summit Partners Venture Capital Fund II during the recent quarter with $300 million. He says it is difficult to decipher significant changes in the fund-raising market based on reports every three months. He says that changes between quarters in fund-raising is often a function of scheduling, and that a fund having multiple closings over several quarters affects the data.
“I would expect that the fund-raising environment will continue to be strong in 2005 and any difference between Q1 and Q2 was just a matter of timing,” he says.
Peter Martenson, a division director with Macquarie Funds Management, grees that too much can be read by looking at the quarterly fluctuations. “Ten to 15 years ago there was more of a cowboy mentality and investing in venture capital was not as disciplined as it is today,” he says.
Menlo Ventures followed the route taken by many venture firms-going back to the well for fewer dollars than its previous funds. Menlo Ventures IX closed in 2001 with more than $1.5 billion. The next largest VC fund to close during Q2 was Insight Venture Partners. The New York-based firm closed its fifth fund with $675 million, which was about 10% less than its fourth fund in 2000, which closed with $740 million.