Q1 Venture Capital Fundraising And Investments Hit Multi-Year Highs

April 15, 2014

US venture capital firms reported their strongest quarter in fundraising since the fourth quarter of 2007 by raising $8.9 billion in the first quarter, more than double the $4.4 billion raised in the same period last year according to data published by Thomson Reuters and the National Venture Capital Association. The funds raised were the largest for any quarter since $10.4 billion was raised in the last quarter of 2007 just before the US economy slumped into a recession. Commitments to new funds were only 8 percent of the amount raised, with follow-on funds attracting the remaining 92 percent of new capital commitments.

Number Of New Funds Highest Since 2000

The first quarter of 2014 saw 25 new funds successfully raising money for venture capital investments. A new fund is defined as the first fund of a newly established venture capital firm. This is the highest number of new funds for a quarter since the fourth quarter of 2000. In comparison, only 56 new funds were launched for the whole of 2013 while there were 74 in 2012, 58 in 2011 and 54 new funds in 2010.

Among new funds, WiL Fund I, L.P. based in Palo Alto, California reported the largest fund raise of $243.0 million for its first fund.

Overall for the first quarter, the five largest venture capital funds raised accounted for 60 percent of new commitments. Palo Alto based TCV VIII, L.P. raised the largest round of $1.38 billion for the quarter followed in second place by San Francisco based Founders Fund V, L.P. with $1.01 billion.

Bobby Franklin, President and CEO of National Venture Capital Association attributed the strong quarter in fundraising to an uptick in venture backed companies tapping the IPO market as well as an increase in the M&A activity which enabled venture firms to cash out on their investments, distribute the proceeds to investors and do a fresh round of fundraising. He added that despite improving conditions, most venture capital firms are still finding it difficult to raise funding.

Venture Capital Investments Highest In Over A Decade

A separate report by consultancy firm CB Insights showed that venture capital funding of US startups totaled $9.9 billion in the first quarter, the highest for a quarter since the second quarter of 2001 and up 44 percent from the comparable quarter in 2013. The number of deals increased 5 percent to 880 from last year’s first quarter. California based companies took in $5.7 billion of the $9.9 billion invested in the quarter. Venture capital firms most active during the quarter include 500 Startups, Kleiner Perkins Caufield & Byers and New Enterprise Associates, with each doing more than 30 deals in the quarter.

Impact On Job Market

The increase in venture capital fundraising as well as investment activity is a sign of improving investor confidence which is a good sign for the job market. Increased activity in the IPO and M&A markets is also positive from a job market perspective. An area of concern is the large proportion of funds going to few select established funds suggesting that investors remain selective in capital allocation. If this cautious stance of investors persists, it will dim hopes for a robust recovery in the venture capital job market.

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