Mega-fund managers in recent years have swelled in size and added additional sector-specific and stage-focused funds to their arsenal.
The latest example of a mega-fund expanding its strategy came on Friday when New Enterprise Associates filed two regulatory documents to raise $6.6 billion combined for two separate funds.
In a departure from its most recent fundraise, NEA is now seeking to raise $2.9 billion for its main early-stage fund, called New Enterprise Associates 18, and $3.7 billion for a late-stage vehicle called NEA 18 Venture Growth Equity, according to separate regulatory filings.
In early 2020, NEA disclosed it had raised $3.6 billion for its 17th fund. LPs included Alaska Permanent Fund, CalSTRS, Nebraska Investment Council, Teacher Retirement System of Texas, Tennessee Consolidated Retirement System and Texas County and District Retirement System, among other pensions, according to the database of affiliate publication Private Equity International.
That NEA fund was the firm’s largest to date, and the majority of the capital was to be concentrated in early-stage opportunities while it would also make select growth-stage investments.
But in shifting to an early-stage and a separate growth vehicle, NEA is following the same strategy as other large fund managers.
Take for example Andreessen Horowitz, which has altogether raised $11.5 billion in the last five years, according to the VCJ 50. That ranking report, released earlier this month by Venture Capital Journal, puts AH as the fourth-largest venture firm worldwide. NEA ranks as the seventh largest in comparison, having raised more than $7 billion in the past five years.
AH’s high ranking was in part due to its $3.2 billion growth fund and a $1.3 billion flagship fund that each closed in 2020. The figures do not include AH’s $400 million seed-stage fund, which closed after the June 30 cut-off for the VCJ 50.
Insight Partners – the top fund manager in the VCJ 50 – raised more than $9.5 billion for its flagship Insight Partners XI in 2019. In 2020, it raised more than $1.5 billion for its first opportunity fund, while also launching Insight Partners XII in 2021, targeted at $12 billion.
The two NEA regulatory documents come about a week after New York growth equity investor Tiger Global Management said it had raised more than $7.7 billion so far for Fund XV, according to a regulatory filing at the time.
Fund XV already ranks as the firm’s largest to date, although it remains open and is reportedly targeted at $10 billion, with a final close expected in the spring. At the end of March 2021, Tiger closed on more than $6.6 billion for its prior fund, and it ranks as the third-largest firm in the VCJ 50.
With all these mega-funds raising larger and more funds, it’s no surprise that the average fund size remains above the historical average, as mega-funds take the lion’s share of capital raised, according to the latest report from Silicon Valley Bank.
What’s driving all these large funds and growth equity vehicles is a surge in late-stage deals, which go hand-in-hand with rising valuations. So it makes sense that NEA would follow suit and shift its long-term strategy to raise a separate venture growth fund.
Data from PitchBook and the National Venture Capital Association shows that 2021 is on track to be the largest year for venture dealmaking. And much of the growth has come from mega-deals – investments in companies at or exceeding $100 million in size – with about 198 of these big-ticket investments closing just in Q2 2021.
LPs tell VCJ they worry the current pace of fundraising is too rapid, with new and larger fundraising rounds coming too close to the last. And LPs fear they will not be able to keep up. While no immediate data is available on how close each funding round is to the previous one, anecdotally, some LPs see an acceleration.
Meanwhile, opportunity funds – sometimes referred to as growth funds or select funds – are also undergoing a resurgence this year. By offering early-stage and multi-stage investors the opportunity to continue investing in their portfolio companies as they scale and raise large growth-stage rounds, firms are able to continue riding the rising tide of valuations, as VCJ previously reported.