The VentureOne/Ernst & Young Outlook Study also found that the distribution of fundraising was evenly matched between the US and Europe, with 53% and 48% of the respondents, respectively, indicating they would be raising another fund by Q404.
While US fundraising in the first three quarters of 2003 has lagged at a significant low of $3.4 billion, signs in the current quarter are already pointing to an upswing. For example, New Enterprise Associates has raised more than $1 billion for its NEA 11 fund, which is to close in the near future – greater than any fund size raised so far this year. European venture capital fundraising has also lagged with €803 million raised in the first three quarters. Meanwhile, the study noted that 10% of the respondents worldwide began concerted fundraising efforts in 2003.
John Gabbert, Vice President of Worldwide Research, VentureOne pointed out that as the pace of exiting has shown signs of improvement in recent quarters – with completed IPOs and increased S-1 filings – a jump in both fundraising and investing is not surprising.
Along with the predicted uptick in fundraising activity, the majority of venture capital firms also report they will be investing at a fairly robust pace, with 73% planning to invest in up to five seed or first-round deals over the next year. An additional one in five (21%) are planning to invest in five to seven early stage deals.
The study found that investors in upcoming funds would largely come from the existing pool. About 57% of the venture capital firms expect 50% to 100% of their current LPs to return. The size of the expected fundraising activity is on par with current levels. More than half, 55%, plan to raise a fund of $100 million or less. Only 7% expected their new funds to exceed $350 million — specifically seven US firms and nine European firms.
As with recent quarters’ financing patterns, health care, specifically biotechnology, is seen as the most promising investment sector in 2004 for a third of the respondents. Separately, 34% of respondents said their firms will increase their investment level in health care/biotechnology/medical devices companies next year and 59% will invest the same as 2003.
Information technology also remains popular: six of 10 firms will maintain their current investment levels in IT, and 28% will increase the level of investment there.
The study was compiled from 257 respondents to a survey sent to venture capital and private equity firms.
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