Venture Firms Raised $2.4 Billion in 4Q, Bringing 2010 Total to $11.6 Billion

U.S. Venture Capital Fund-Raising Continues Decline in 2010, Hits Seven-Year Low

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Late-Stage Funds Saw a Substantial Jump

Recent improvement in the exit markets has not enticed limited partners (LPs), still haunted by the industry’s lackluster returns over the last decade, back to venture funds. In 2010, U.S. Venture Capital fund-raising fell to a seven-year low as firms raised $11.6 billion across 119 funds, a 14% drop from the $13.5 billion collected by 133 funds in 2009, according to figures from Dow Jones LP Source. In the fourth quarter, 15 funds raised $2.4 billion, a 48% drop from the same period last year.

Across the U.S. private-equity spectrum, which includes venture funds, 336 funds raised $86 billion in 2010, down 16% from 2009. (See detailed PE breakout.)

“Only the best fund managers are raising capital, and even some of those firms are forced to downsize in line with a smaller exit expectations,” Scott Austin, editor of Dow Jones VentureWire, said. “As a result, we expect to see a continued shakeout in the venture industry.”

Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately, based on the year of the closing, to provide an accurate view of the annual fund-raising environment.

Late-Stage Funds See Increase

Both early-stage and multi-stage funds continued to decline in 2010; however, late-stage funds saw an increase. Eight late-stage funds raised $1.5 billion in 2010, a 68% jump from the $887 million raised by nine funds in 2009. In the fourth quarter, late-stage funds raised $390 million, nearly tripling the amount raised during the same period last year.

Multi-stage funds accounted for the majority of venture funds raised, as 38 funds collected $5.4 billion, down 26% from last year. It has become apparent that LPs are growing more selective, both with the funds they invest in and the amount of capital they invest in the asset class. In response, many firms are downsizing their funds. For example, Menlo Ventures closed on $400 million for its eleventh fund, one–third the size of its 2005–vintage predecessor.

Seventy-three early-stage funds collected $4.8 billion, a 12% drop from last year’s total. Some of this early-stage capital was raised by super angels turned venture capitalists. In the fourth quarter, Andreessen Horowitz, a firm founded by Marc Andreessen and Ben Horowitz, raised a $650 million fund, its second fund in two years. Former Google executive Aydin Senkut founded Felicis Ventures, which raised a $40 million fund last year.