Early Stage VC Firms Score Big in 2013 in Mixed Year for Venture Capital

January 29, 2014

Early stage venture firms provided the spark in the venture capital space last year with a total of 151 firms closing venture capital rounds, the most since the tech bubble burst in 2001, when there were 199 closing. These funds together raised $9.37 billion during the year, a 51 percent jump from 2012, which saw 118 early stage closing. The strong performance of early stage funds comes in a year in which total venture capital fundraising was 10 percent lower at $19.66 billion compared to $21.86 billion in 2012 according to data published by research firm DJX LP Source. Despite lower overall fundraising, more venture firms raised capital in 2013 than the prior year.

Handful Of Firms Dominate

venture-seed-money source medcity newsA total of 205 firms closed capital in 2013. Of these, just 14 funds of $400 million or more raised $9.94 billion accounting for more than half of all the capital raised. Insight Venture Partners which mostly invests in later stage deals attracted the most capital with $2.57 billion, which was roughly 13 percent of all the capital committed. On the other hand, early stage technology investor firm Greylock Partners closed a $1 billion round, the second largest fund in 2013. Healthcare investor OrbiMed Advisors did a $735 million round ahead of its target of $550 million as successful IPOs of some life sciences companies boosted investor sentiment in the space.

While well-known names such as Battery Ventures, General Catalyst Partners, Highland Capital Partners, Matrix Partners, Redpoint Ventures and Sequoia Capital had successful closing, there were a few bright spots too among newly launched funds. For instance, newly launched venture firm Formation 8 closed its first fund at $448 million with significant contribution from Asian conglomerates. Another newcomer firm Drive Capital which is based in Ohio and founded by two former Sequoia Capital partners successfully closed $300 million for its first fund.

Software Biggest Draw

A separate report from PriceWaterhouseCoopers and the National Venture Capital Association reveals software firms attracted $10.96 billion in venture capital for the year, the most since 2000. Biotechnology took the second spot taking in $4.5 billion in investments in 2013. Venture firms invested $29.36 billion in startups in 2013, 7 percent higher than the $27.32 billion in 2012. Activity was strong during the December quarter with startups attracting venture investments of $8.37 billion, highest for a quarter since the end of 2007.

Optimism Rising

A survey conducted by the National Venture Capital Association and the Dow Jones VentureSource found a greater level of optimism among venture capital firms and chief executive officers of venture backed firms compared to last year. In the survey, 59 percent venture capitalists revealed expectations for a greater level of venture investments in 2014, a significant improvement over the same time last year when only 27 percent anticipated increased venture investments. Likewise, 57 percent of CEOs expressed anticipation of increased level of activity in 2014 compared to 43 percent CEOs in the same survey a year ago.

Both venture capitalists and CEOs were optimistic that employment picture would improve on the back of improving business environment and diminishing entrance risks for new entrepreneurs. Roughly 73 percent of venture capitalists in the survey expect higher investments in business information technology in 2014, while 63 percent see lesser capital moving to clean technology.

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