Venture capital fundraising is on the upswing in the United States thanks to a third-quarter surge in the number of micro-funds (less than $50 million), new data released today by PitchBook show.
Thirty-six venture capital funds closed in the third quarter this year compared to 33 in 2Q, 20 in 1Q and 17 in the fourth quarter last year, reflecting a healthier fundraising environment for venture capital in 2013, which has seen VC firms raise $11.1 billion across 89 vehicles. Twenty-four of the 36 third quarter funds were micro-funds that raised a collective $350 million—a small sum to be sure.
“These smaller ‘micro-funds’ are good news for early-stage companies that will be attracting the attention of these investors, [as] larger venture funds are being phased out in favor of smaller, more focused funds,” said Adley Bowden, director of research at PitchBook.
Still, seven funds closed in the more mid-range $100 million to $250 million bucket last quarter, and for the first time since 3Q 2012 the VC industry saw the close of a mega-fund—Greylock Partners’ $1.1 billion fund XIV.
VC funds of less than $50 million comprised two-thirds of all funds closed in the third quarter. | Source: PitchBook
While billion-dollar VC funds are rare, the seven-quarter period from 1Q 2011 to 3Q 2012 featured at least one mega-fund per quarter, with the last one prior to Greylock’s recent vehicle being New Enterprise Associates’ $2.6 billion Fund 14.
This quarter also featured the fewest number of funds larger than $250 million (just two) since 2010, as the amount of capital raised actually dropped from previous quarters to $3.06 billion. This reflects a growing trend toward seed investments, which involve less equity than early stage and late stage investments, and the fact that a handful of the most successful firms have been raising ever larger funds in recent years, which has resulted in periodic spikes in fundraising activity.
One sign that VC firms are finding it easier to raise and close funds is that a large majority of them are meeting their targets. In 1Q 2012, just 65% of funds hit their target. But that proportion has steadily grown (with the exception of 1Q 2013, when just 60% of funds met their capital commitment target) to 85% in 3Q 2013. Overall, with VC dry powder at a five-year low and investing at a torrid pace, we should continue to see more funds close and hit their targets in the quarters to come.
Said Bowden: “With VC dry powder at a five-year low and investment outpacing new fundraising, the venture capital industry should be paying close attention to fundraising numbers”