Venture capital fundraising appears to be suffering from the slow IPO market for technology offerings and the overcapitalization of unicorn investing.
This has been particular evident lately, as U.S. fundraising activity in the fourth quarter through November has slumped to the year’s lowest point.
U.S.-based venture firms began seeing the softening in September, and October and November brought a worsening. Only $1.6 billion was raised in those two months with just the final tally in December remaining to lift the total, according to preliminary data from Thomson Reuters.
Third quarter fundraising was more than double that mark at $5.4 billion, according to the data. In comparison, the first half of the year was particularly robust with $11.9 billion raised in the second quarter and $8 billion raised in the first.
The fourth quarter slowdown is partly the result of a fall off of mega funds in the market. New Enterprise Associates, Bessemer Venture Partners and IVP all raised billion-dollar-plus funds in the first half of the year. NEA 15 was $2.8 billion in size.
But the soft IPO market and high unicorn valuations are likely playing a role. In early November, confidence among Silicon Valley venture capitalists fell to the lowest level in four years with the lackluster IPO market and high unicorn valuations to blame, according to the Silicon Valley Venture Capitalist Confidence Index.
The fourth quarter’s largest fund through Nov. 23 is a $400 million Fund XII from Trinity Ventures. Frazier Healthcare Partners raised $262 million for a life sciences fund and Andreessen Horowitz raised $200 million for a biology and medicine fund.
Still, overall year-to-date fundraising is at nearly $27 billion, which is only about $5 billion off of last year’s high mark of more than $32 billion, but still ahead of 2012 and 2013 fundraising figures.
Whether the recent slowing in U.S.-based venture fundraising will continue next year is hard to guess. Some LPs contend 2016 may see a burst of fundraising in anticipation of a weaker U.S. economy and a worsening IPO environment with a strategy of getting new money while it is available.
Photo courtesy of Shutterstock.
To download an Excel file: Venture fundraising by quarter
To download an Excel file: U.S.-based venture fundraising (Q4 2015)