Mid-sized venture capital funds have fallen in number in recent years as limited partners remain cool to the asset class and big funds soak up an increasing share of the available capital.
Only 16 funds between $250 million to $800 million in size were raised during the 18 months ended in June, according to data from Thomson Reuters, publisher of VCJ. In comparison, 41 funds of the same size were raised in 2006 and 45 in 2007.
This so-called decline of the middle has played out steadily over the past five years. Mid-sized funds made up 58% of capital raised in 2007. The percentage fell to 47.2% in 2009 and 37.6% last year, according to Thomson Reuters data.
Part of the explanation is the rise of the mega fund. These behemoth funds of $1 billion or more have captured an increasing share of the available capital. Mega funds accounted for a record 35% of all venture capital raised during 2011 and the first half of 2012, compared to 6% in 2007 (click on the Related Articles link on the right).
The shift to large funds and away from mid-sized funds is the result of several changes in the investment landscape. For one, firms have become global investors with offices in China, India and elsewhere.
For another, partnerships have gone multi-stage, investing not just in early-stage deals and growth companies, but pre-IPO startups with considerable demands for cash. All this requires resources.
Meanwhile, the industry is going through a period of contraction. The number of venture firms that raised money in the past eight years slipped to 842 last year from 1,004 five years earlier, according to data from the National Venture Capital Association.
Some GPs and LPs say this is evidence of a maturing industry undergoing consolidation. What seems clear in any event is that more money is falling into the hands of fewer firms.
The accompanying charts (click on the Tables link on the right) provide year-by-year detail of the fate of mid-tier fundraising and include a list the mid-sized funds raised in 2011 and 2012.
Photo of gold dollar coins in the hands of a U.S. Mint worker by Reuters/Brendan McDermid.