The fundraising levels represent a significant drop in fundraising activity from the previous quarter, when 42 funds raised $1.7 billion (See Slim Pickings For VCs in 2002 ). Taking into account firms that reduced their fund sizes in the first quarter, the net amount raised was $603.6 million, a figure that has not been seen since the third quarter of 1994, according to data from Thomson Venture Economics and the National Venture Capital Association (NVCA).
Results from the first quarter also point toward future activity. Fundraising activity is expected to remain low for the foreseeable future as the venture capital industry steadily depletes its current reserves. “It’s going to be a while before we see venture capital fundraising activity pick up,” said Mark Heesen, president of the NVCA in a statement. “The venture industry currently has an $80-billion dollar overhang and we expect to see a significant portion of those reserves to be deployed prior to seeing a substantial increase in fundraising activity.”
The majority (72.2%) of the venture capital funds that did raise new capital were follow-on funds such as Intersouth Partners VI, L.P., Caduceus Private Investments II, L.P., and ARCH Venture Fund VI, L.P. The trend toward follow-on funds reflects a desire by many limited partners to place their assets with firms that have demonstrated a track record of success.
However, first time funds with strong value propositions and investment focus were able to raise dollars as well. During the first quarter, new first-time funds, such as Quaker BioVentures Fund I, Lumina Ventures, L.P., and NeuroVentures Fund, L.P. successfully completed fundraising initiatives.
Similar to the venture capital trend, buyout and mezzanine funds also showed the same lower activity levels. While 21 buyout and mezzanine funds were raised in the fourth quarter of 2002 for a total of $4.29 billion, only 13 buyout and mezzanine funds raised capital in the first quarter of 2003, totaling $1.04 billion. The Sun Capital Partners III buyouts fund was responsible for almost half of this amount, accounting for $500 million.