Venture Fund Raising Tops $6b in Q1; Most Money Goes To Early Stage Funds

National Venture Capital Association

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Twenty-three early-stage funds raised $3.4 billion, or nearly 53 percent of the new money.

The total amount of funding generated by 51 firms represents a $1.14 billion increase over the same quarter one year ago. However, the first-quarter fund raising was $1 billion less than in the fourth quarter of 2005.

Only nine of the 51 funds were new ones, two fewer than the same period in 2005 and half that of the fourth quarter.

The first quarter appears to have the venture capital industry on pace with 2005 when 194 funds raised more than $26 billion.

"First quarter fundraising was again robust but still within a prudent range," said Mark Heesen, president of the NVCA. "We have exhibited tremendous discipline in this cycle and that will serve our limited partners well."

In contrast, venture funds raised some $17.9 billion in 2004 and $10.7 billion in 2003.

Polaris Venture Partners V closed on the largest amount - $1 billion. Highland Capital Partners VII closed on $800 million.

Even more money poured into buyout funds, some $24.9 billion. That figure is 76.8 percent higher than in 2005 but fell short of the record of $31.9 billion set in the fourth quarter of last year.

"Buyout firms continue to raise funds at a remarkable pace, absorbing what appears to be a very strong investor demand for alternative asset classes," said Daniel Benkert, senior analyst at Thomson Financial. "Buyout funds have historically raised 2-3 times more the dollars than venture funds raise. However, we are now seeing that number creep up to 4 times as much. And with several other mega buyout funds in the process of raising commitments with a combined target of well over $40 billion, the year ahead looks to be a repeat of last year. Time will tell as to whether there are enough opportunities to put that money to work in a manner that generates the returns that investors are expecting."

The fund-raising news comes on the heels of a dismal first quarter for initial public offering exits by venture-backed firms. Only 10 executed IPOs worth a total of $540.8 million. The $54.1 million average per IPO was the lowest since the third quarter of 2002.

However, mergers and acquisitions produced 95 deals worth $4.8 billion, the highest value in five years, according to Thomson and the NVCA.