The Rise of the Mega Fund

Massive billion dollar plus mega funds are capturing a record share of venture capital as VC firms chase multi stage deals, expand abroad and finance pre-IPO companies.

Seven of these funds closed in the past year and a half and accounted for more than a third of all venture capital raised through June.

The concentration of capital is even greater if firms that raised separate funds exceeding $1 billion in combined capital are included in the total. Add in these funds and 56% of capital raised went into big dollar firms.

VCJ published a story cataloging the rise of the mega fund in its October issue. Here are the calculations behind the article.

In the accompanying chart, we list the mega funds of $1 billion or more raised from the start of 2011 through mid-year 2012. We also list the firms with multiple funds that crack the billion-dollar mark.

The firms are some of the biggest names in the business: New Enterprise Associates, Sequoia Capital, Andreessen Horowitz, Khosla Ventures, Accel Partners and Institutional Venture Partners.

Together, their mega funds have raised $10.3 billion of the $29.7 billion in capital collected during the period, or 35% of the total. Firms with multiple funds that when added together create mega funds raised $6.4 billion.

Few issues are more significant for the venture ecosystem than the concentration of capital. Many VCs question whether these large funds can generate attractive returns. The answer could help determine whether LPs brighten their view of the asset class.

Equally important is the potential shift in industry control to a small number of firms, should the flood of cash to big funds continue. Venture capital has traditionally been a fragmented industry with practitioners carving out their own operating spaces.

Like many other aspects of finance, it appears to be maturing and consolidating.

Photo: A pile of newly minted one dollar coins at the U.S. Mint. Reuters/Jim Young.