VC Firms Raise $4.89 Billion in Q1 –

NEWARK, N.J. – Amid a bullish economy that has contributed to institutional investors’ interest in alternative investments, 51 venture capital firms raised a record $4.89 billion in the first quarter of 1999, despite many experts’ continued predictions of an eventual flattening out of the fund-raising frenzy.

The figure, compiled by Venture Economics Information Services, a Venture Capital Journal sister company, exceeds last year’s $3.45 billion first- quarter fund-raising total by almost $1.5 billion. If the current trend continues, the venture industry could again surpass the $20 billion barrier it crossed for the first time in 1998, when 200 funds raised a total of $24.34 billion (VCJ, March, page 44).

Many industry sources have cautioned that valuations and returns will eventually fall back to earth after being inflated by the robust economy of recent years. However, coming off the seventh consecutive year of record-breaking venture capital fund-raising figures, the trend shows no signs of slowing down anytime soon.

A large portion of the mind-numbing totals raised so far this year was invested in well-established firms that were in many cases able to double their prior fund-raising efforts.

Spectrum Equity Investors III, for example, wrapped on $650 million in January, more than 257% larger than its predecessor, which closed on $253 million in 1997 (VCJ, April, page 28). The firm, which focuses on the telecommunications, information technology and media/technology industries, was able to raise the massive vehicle just three months after Fund III’s October 1998 launch.

Information technology-focused Technology Crossover Ventures’ oversubscribed $400 million TCV III also had little trouble raising money, quickly breezing by its $300 million target in just four months (VCJ, March, page 26).

And Battery Ventures notched $363 million of its $400 million-targeted fifth fund in the first quarter, all but $50 million of which came from existing limited partners (VCJ, April, page 26). Battery IV, investing in software, telecommunications services and equipment, wrapped on $200 million in January 1997.

At least 12 venture funds had surpassed their target size by the first quarter, another indication that investors were clearly willing to put their money in the hands of trusted managers.

A strong influx of corporate venture capital also flooded the market in early 1999. Seagate Technology Inc. (story page 5), a manufacturer of disk drives and data storage products, and Comcast Interactive Capital, the venture capital arm of cable television operator Comcast Corp. (VCJ, February, page 5), each earmarked significant amounts of capital for venture investments in the first three months of the year.

Strategic corporate entities have been very active VC entities in recent years, another strong indicator of the economy’s strength and the expansion of the industry beyond the walls of traditional investors.

Funds based in the two hubs of the venture industry – Silicon Valley and Boston – accounted for nearly 70% of the total capital raised in the first quarter. Twelve California-based funds raised $1.87 billion, while 10 Massachusetts firms collected $1.54 billion.