Venture Funds See Belt Tightening In 2002

February 11, 2003 ( - Venture capital funds raised only $6.9 billion in 2002, their lowest net inflow since 1991.

The $6.9 billion netted in 2002 was due to the contributions of only 108 venture funds.   These results represent only a fraction of the industry’s record 2000, when 653 funds raised $106.9 billion. They are significantly lower than a year ago when $40.7 billion was raised by 331 venture funds, according to data from Thomson Venture Economics and the National Venture Capital Association (NVCA) industry group as reported by Reuters.

The report points to the highly publicized crash of the dot-coms, prolonged downturn of technology and telecommunications stocks and the negative returns in the stock markets, as major factors in the public’s loss of appetite for offerings of start-ups.   Additionally, corporations have been much more reluctant to look toward acquisitions using stocks to buy smaller, privately held companies backed by venture funds (See  Slim Pickings for VCs in 2002 ).

Investors are also showing reluctance to place additional money in venture funds, already filled to the brim with approximately $80 billion committed to invest in privately held companies.   This surplus of cash, coupled with few opportunities to sell start-ups and their shares, have led some large funds to go down an unusual path: returning money to investors. Data from the report found that 26 venture capital funds had downsized their holdings in 2002, returning an estimated $5 billion to financiers.