Wednesday, July 27, 2011


Venture capital performance continued on a gradual upward trajectory as of the first quarter of 2011 according to the Cambridge Associates U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association (NVCA). The improvements were seen across all time horizons, with the exception of the 15- year numbers, and were driven by the strong one-year venture capital return of 18.5 percent. The quarter marks the second consecutive one in which there were double digit returns for the oneyear horizon and modest improvements in the three-, five-, and ten- year performance numbers. Venture capital returns outperformed the public indices in the one-, five-, 15- and 20-year horizons.

The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,308 U.S. venture capital funds (867 early stage, 170 late & expansion stage, 268 multi-stage and 3 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2010. 1 Pooled end-to-end return, net of fees, expenses, and carried interest as of 3/31/2011. Sources: Barclays Capital, Bloomberg L.P., Cambridge Associates LLC U.S. Venture Capital Index®, Frank Russell Company, Standard & Poor's, Thomson Datastream, The Wall Street Journal, and Wilshire Associates, Inc.

*Capital change only. “Slow and steady improvement has been the name of the game in venture performance for the last several quarters,” said Mark Heesen, president of NVCA. “The venture capital industry is coming through a very turbulent period in U.S. economic history and recovery is going to take time, even with the improving exit market we have seen in the last year. But make no mistake that we are headed in the right direction and we expect these gains to continue throughout the coming year. Overall, this should be encouraging for the upcoming class of companies preparing to exit as well as new companies just entering the pipeline.”

“The one-year return was strong and the longer-term performance continued to improve. The five-year return, which outperformed public indices, encompasses the recent recessionary period, the recovery and now three quarters of good IPO activity. The improving exit environment is encouraging and should continue to boost performance in 2011,” said Theresa Sorrentino Hajer, Managing Director and Venture Capital Research Consultant at Cambridge Associates.

See a full detailed report with industry sector breakouts

Tuesday, July 26, 2011

China Leads the World in Venture Capital Growth


China is working to become a leading innovator as VCs invest in emerging technologies

BVenture capital investments in China have come roaring back from the economic crisis, reaching $5.4 billion in 2010, a 79% increase over 2009. China venture capital (VC) investments are growing at a pace that’s outstripped every other nation on the planet, according to the inaugural report from Lux Research’s new China Innovation Intelligence service. Lux Research reports that 40% of China’s overall venture capital has backed emerging technologies since the start of 2010, affirming the country’s intent to be a rising global leader in technological innovation.

“Foreign investors look for breakout technological innovations. Domestic investors do as well, but they also factor in market channels and financials when selecting companies,” said Zhuo Zhang, a Lux Analyst and the report’s lead author. “And locals are getting in earlier: Series A rounds represent over 80% of all domestic VC-backed deals, while foreign VCs have backed less than half that many. This implies that many untapped opportunities await foreign investors willing to step beyond familiar territory.”

Titled “Investing in Indigenous Innovation: China's Emerging Technology VC Landscape,” the report charts investment opportunities beyond well-travelled enclaves like Beijing and Shanghai to help foreign corporations and investors successfully navigate China’s expanding frontier of innovation. It surveys how VC deals are distributed across multiple emerging technology domains and throughout China’s 31 regions. It also compares the investment patterns of domestic and foreign VC firms, providing insights into how local investors approach China’s unique opportunities differently.

Among the report’s key insights:

• VC activity is unequally, but broadly distributed by regions. Twenty-six out of China’s thirty-one regions received VC investment for emerging technologies since the beginning of 2010, but just four – Beijing, Shanghai, Jiangsu, and Guangdong – account for 60% of the activity. Foreign VCs have out-invested their domestic counterparts by two-to-one in both Beijing and Shanghai.

• Domestic and foreign VC firms have distinct industry portfolio weightings. Foreign investors have driven significant activity in LEDs, medical equipment, solar, and pharmaceutical industries. In contrast, domestic VC firms dominate investment in materials technologies, be they advanced materials platforms or green building construction materials. Even within technology domains there are distinct behaviors: For energy storage, domestic investors heavily favor lithium-ion battery opportunities, while foreign interests have scattered deals in flow batteries, supercapacitors, and fuel cells.

• Solar, LEDs, and wind show signs of maturity. With average deal sizes of $24 million for LEDs and $26 million for solar, these industries are moving out of the VC realm and are already experiencing the cost and margin-crunching pain of over-population. The next generation of concentrated solar thermal technology, building-integrated photovoltaics and thin film start-ups will be needed to reinvigorate the solar VC climate in China. Notably, no wind energy deals were uncovered as large incumbents now dominate the landscape.

“Investing in Indigenous Innovation: China's Emerging Technology VC Landscape,” is part of the Lux China Innovation Intelligence service. Clients subscribing to this service receive ongoing research on market and technology trends, continuous technology scouting reports and proprietary data points in the weekly Lux Research China Innovation Journal, and on-demand inquiry with Lux Research analysts.

Related article

Monday, July 25, 2011

The magnitude of the performance gap between US and UK venture capital funds

The importance of a vibrant venture capital industry in supporting growth is widely recognized, and consequently governments across the world have sought to promote the industry. But the development of the VC industry in the UK (and in many other countries) has been hampered by the low returns it delivers to its investors.

Understanding how the UK venture capital market compares to more successful ones, particularly the US market, is the first step towards improving the performance of the UK VC industry.

This report, entitled Atlantic Drift, sheds further light on the magnitude of the performance gap between US and UK venture capital funds, its evolution over time, and what the likely drivers of the performance differences are. It uses a novel database that combines data on VC fund performance and their investments in the US and UK for 791 funds raised between 1990- 2005. Therefore, it not only reports differences in aggregate performance across countries, but in addition it compares like-for-like funds, with the same focus, vintage year and experience, but located on opposite shores of the Atlantic.

The report is analyzed in an aiCIO article :

A new report has discovered that the performance gap in venture capital between the United States and the United Kingdom -- once a significantly large divide -- has gradually narrowed over the last decade.

The research by the National Endowment for Science, Technology and the Arts (NESTA), titled ‘Atlantic Drift: Venture Capital Performance in the UK and the US’, found that the reason for the convergence was largely due to average returns in the US declining rather than a noticeable improvement in the performance of UK funds.

“The convergence of returns has not been driven by UK funds becoming better, but by the worsening performance of US funds,” the report stated.

According to the research, the gap in fund returns between the average US and UK fund has fallen from over 20% before the dot-com bubble (funds raised in 1990-1997) to 1% afterwards (funds raised in 1998-2005). Furthermore, average returns for funds raised after the bubble in both the UK and the US have been relatively poor, but venture capital performance is likely to move upwards as venture capital funds begin to cash out their investments in social networks (particularly in the US). Thus, according to the author of the report, Josh Lerner of Harvard Business School, US funds -- better positioned to profit from the emerging social media boom with generally superior investment opportunities -- may forge increasingly ahead of UK funds in performance.

As outlined in NESTA's research, the strongest quantifiable predictors of venture capital returns performance are (a) whether the fund managers’ prior funds outperform the market benchmark; (b) whether the fund invests in early rounds; (c) whether the fund managers have prior experience; and (d) whether the fund is optimally sized (neither too big nor too small). Moreover, historical performance has been higher for funds located in one of the four largest investor hubs (Silicon Valley, New York, Massachusetts and London) and for investments in information and communication technology...

Short on Institutional Investors, Venture Capital Firms Fund Fewer Start-Ups

Complete article

One of the reasons that venture capital firms have invested less in start-ups is because institutional investors are hesitant to invest in venture capital firms in the wake of the financial crisis, according to the NVCA. Traditionally, institutional investors – such as pension funds and endowments – invest in venture capital firms, who in turn fund start up companies. Without the backing of institutional investors, it is difficult for venture capital firms to maintain their investments in start-up companies.

According to Mark Heesen, the president of the NVCA, “For the past three years, the venture capital industry has been investing significantly more dollars into companies than it has been raising from institutional investors. This level of investment cannot continue if we do not start to see a pick-up in exits and, subsequently, fundraising.”

The stagnation of US venture capital has contributed to a steady narrowing of the once-considerable gap in performance between US and UK venture capital firms, aiCIO reported in June. The report focuses on a study entitled “Atlantic Drift: Venture Capital Performance in the UK and the US,” which concludes that the worsening performance of US funds – not an improvement in UK fund performance – is the reason for the narrowing gap.

Venture Investment into U.S. Companies Levels Off in Second Quarter of 2011


Dow Jones VentureSource: Software Investments in IT and Healthcare Gain Momentum;
VCs Share the Cost of Growing Energy Companies

Investors put $8 billion into 776 deals for U.S.-based venture companies during the second quarter of 2011, a 5% decrease in investment and 2% decrease in deals from the same period last year, according to Dow Jones VentureSource. The median amount raised for a round of financing during the second quarter was $5.2 million, up from the $4.6 million median a year earlier.

“Venture investors and entrepreneurs are adjusting to a new reality with more liquidity opportunities and stronger support from corporate investors,” said Jessica Canning, global research director for Dow Jones VentureSource. “As a result, venture investment has held steady as companies either plot an exit or utilize creative financing strategies like government grants, corporate leasing, or project financing to fuel growth.”

Corporations have invested more than $1 billion into venture-backed companies in the past nine months.

Software a Bright Spot in Healthcare and IT

Deals for Healthcare companies slowed 12% and capital invested dropped 17% as 184 deals raised $2.3 billion in the most recent quarter. Despite a 25% drop in deal activity and 7% drop in capital invested, the Biopharmaceuticals sector raised the most capital of any Healthcare sector as 69 deals collected $1.1 billion. The Medical Devices sector was essentially flat as 84 deals raised $925 million. Medical IT, which includes software and services for handling medical records and data, was a bright spot in the Healthcare industry as 19 deals collected $198 million, a 58% jump in deal activity and 27% increase in capital invested.

Information Technology (IT) companies raised $2.3 billion for 255 deals, a 5% increase in deals and 9% increase in capital invested over the second quarter of last year. The Software sector, which saw a deep decline in 2009, has regained its momentum thanks to renewed interest in business applications and communications software. Software companies raised $1.2 billion for 184 deals in the most recent quarter, a 10% increase in deal activity and 26% jump in capital invested. Deal activity in all other sectors of IT – Communications and Networking, Electronics and Hardware, and Semiconductors – was down.

Slight Dip in Deal Flow for Enterprise Start-Ups

Business and Financial Services companies raised $1 billion for 125 deals during the second quarter, a 15% increase in capital invested but a 3% drop in deals from the same period a year earlier. The Business Support Services sector, which is driven by interest in advertising, marketing and data management services, continued to take the lion’s share of investment as 99 deals collected $770 million. Deals in the Financial Institutions and Services sector, which includes start-ups focused on payment processing and lending, fell as 19 deals raised $254 million, a 21% decrease in deal activity but a 36% increase in capital invested.

Consumer Start-Ups Raising Larger Rounds

Consumer Services companies collected $1.3 billion for 138 deals in the most recent quarter, a 51% jump in capital raised and a 7% increase in deals over the same period last year. The Consumer Information Services sector, which includes the much-hyped social media, entertainment and other consumer Web companies, collected 25% more capital than the year-ago period despite a slight drop in deal activity as 97 deals raised $866 million.

“The median round size for consumer deals is creeping up, which means it’s no longer just a few abnormally large funding rounds driving up investment levels,” said Scott Austin, editor of Dow Jones VentureWire. “The wealth is being spread to companies across the industry.”

In 2009 and 2010, the quarterly median round sizes for Consumer Services companies ranged from $2.5 to $3.5 million. In the most recent quarter, the median round size spiked to $4.7 million.

Energy Deals Steady but Capital Raised From VCs Plummets

The Energy and Utilities industry raised $566 million for 29 deals, less than half the capital raised for the 30 deals completed in the second quarter of 2010. As usual, the Renewable Energy sector accounted for most of the industry’s investment as these companies raised $540 million for 27 deals.

“Venture capitalists have a steady appetite for energy start-ups but are looking to share the cost of growing these companies,” said Ms. Canning. “As fewer venture dollars are committed, we see energy companies raising funding from corporations, the government and other types of investors.”

Early-Stage Rounds Account for 37% of Deals

Seed- and first-rounds accounted for 37% of deals and 19% of capital invested during the second quarter, a slight change from last year when early-stage rounds claimed 35% of deal activity and 16% of capital raised. Later-stage deals accounted for 39% of the quarter’s deals and 58% of total capital raised in the second quarter, down from the same period last year when later-stage deals accounted for 41% of deals and 62% of capital raised.

Wednesday, July 20, 2011


Internet-Specific Investments at 10-year High Level

Life Sciences Dollars Jump 37% from First Quarter 2011

National Aggregate Numbers including industry sector and stage of investment breakouts

Regional and State Numbers

Q2 2011 Top 10 Deal List

Venture capitalists invested $7.5 billion in 966 deals in the second quarter of 2011, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly venture capital (VC) investment activity increased 19 percent in terms of both dollars and the number of deals compared to the first quarter of 2011 when $6.3 billion was invested in 814 deals.

The quarterly investment level represents the highest total in a single quarter since the second quarter of 2008. The deal count for the first half of 2011 (1,780 deals) is nearly identical to that seen in the first half of 2010 (1,784 deals) while the $13.8 billion invested in the first half of 2011 represented a 12 percent increase over the $12.3 billion invested in the first half of 2010.

The Life Sciences sector (biotechnology and medical device industries combined) saw an increase in VC dollars invested during the second quarter, rising 37 percent in dollars and 12 percent in deal volume from the prior quarter to $2.1 billion going into 206 deals. Investments in Internet-specific companies also rose considerably to the highest quarterly level since 2001.

"This quarter's increased investment levels signals an incredible opportunity for job creation and innovation, but if current dynamics continue, it will not be sustainable,” said Mark Heesen, president of the NVCA. “For the past three years, the venture capital industry has been investing significantly more dollars into companies than it has been raising from institutional investors. This level of investment cannot continue if we do not start to see a pick-up in exits and, subsequently, fundraising. The money simply will not be available to invest. Ironically, our industry should be much less concerned about a bubble and more concerned about being in a position to adequately fund the tremendous opportunities out there in the next decade.”

"The rise in venture capital investments going into the Life Sciences and Internet sectors can be attributed to the increase in exit activity in the Life Sciences sector and attractive valuations for Internet companies," noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "The exit market for both biotech and medical device companies has been active over the past year, and this has encouraged VCs to put more money back to work in this space. It also makes sense that we're seeing an increase in VC investments going to Internet companies, when you take into account the valuations on some IPOs that have priced recently, particularly in the social networking space. As long as the markets continue to reward these companies with attractive valuations, we would expect to see a strong level of venture capital funding in that space. Overall, the increase in investment levels in Q2 remains encouraging for entrepreneurs. At the current pace of venture capital investing, 2011 is on track to exceed $26 billion, which would put it as the sixth most active year in VC investing history."

Industry Analysis

The Software industry received the highest level of funding for all industries with $1.5 billion invested during the second quarter of 2011. This level of investment represents a 35 percent increase in dollars compared to the $1.1 billion invested in the first quarter. The Software industry also had the most deals completed in Q2 with 254 rounds, which represents a 25 percent increase from the 203 rounds completed in the first quarter.

In terms of dollars invested, the Biotechnology industry returned to second place, rising 46 percent from the prior quarter to $1.2 billion in the second quarter of 2011. The number of deals also rose in the second quarter, increasing 20 percent to 116 from 97 in the first quarter of 2011. The Medical Devices and Equipment industry also experienced an increase, rising 26 percent in Q2 to $841 million, while the number of deals remained relatively flat at 90 deals in Q2. This sector ranked third overall in Q2 in terms of dollars invested.

Investment in Internet-specific companies surged in the second quarter with $2.3 billion going into 275 companies. This level of investment represents a 72 percent increase in dollars and a 46 percent increase in deals from the first quarter when $1.4 billion went into 189 deals. The second quarter marks the most dollars going into Internet-specific companies in a decade, since the second quarter of 2001. Five of the top 10 deals this quarter, including the top two deals, were classified as Internet-specific investments, which is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw a 23 percent decrease in dollars to $942 million in Q2 from the first quarter when $1.2 billion was invested. The number of deals completed in the second quarter, however increased 11 percent to 81 deals compared with 73 deals in the first quarter, marking the most active quarter for Clean Technology deals completed in MoneyTree history.

Ten of the 17 MoneyTree sectors experienced double-digit increases in dollars in the second quarter, including IT Services (19 percent increase), Media & Entertainment (27 percent), Consumer Products & Services (248 percent), and Semiconductors (22 percent increase).

Monday, July 18, 2011

New study details the path to success for social investing

A new study by researchers at Santa Clara University's Center for Science, Technology, and Society sheds light on the current investment methods and profit expectations of 45 "impact investors," who invest in social-entrepreneur ventures around the world. The study aims to be a first step toward creating a more coordinated, venture-capital-style system for such social-venture startups.

View the full report. Coordinating Impact Capital, A New Approach to Investing in Small and Growing Businesses,


Here in the U.S., any first-year business student can tell you how the venture-capital process works for business startups: Seed or "angel" money is followed by early-stage VC investors who percolate successful ventures, followed by up-round VC investors and possibly "mezzanine" financiers. It's a very "vertical" process that's capped off, if one is lucky, by an initial public stock offering or an acquisition by a deep-pocketed company.

But that's not how it works for social-entrepreneur startups – those businesses around the world that are trying to solve stubborn social problems like food security or energy access and maybe one day make a profit as well.

There, the flow of investment capital is much more disconnected, inconsistent, and lacking in clear metrics to get the next phase. In other words, it's very "horizontal," notes John Kohler, a retired venture capitalist now working as a fellow with Santa Clara University's Center for Science, Technology, and Society. Kohler and a team headed by Jessica Sawhney, a recent Clinton Fellow, have now completed the first-of-its-kind report.

"Wouldn't it be great if, when a socially beneficial business received its first grant, it already knew where the next round would likely come from, and what benchmarks would be required to secure follow-on capital?" asked Kohler. "Currently, it's all over the map."

For the study, Kohler, Sawhney and a team of student researchers interviewed more than 45 funds, examining where they invested, size and type of investment vehicle used, time horizon preferred and outcomes that were expected for each of several classes of capital: grants, "soft" loans, debt, quasi-equity and equity investors.

Among the findings of the study:

• Almost all respondents stated they would like to participate in syndicated investments, either around a financing event or horizontally along a phased investment structure - but they needed to learn more about potential collaborators.

• All investors in this area are extending their time horizon for an exit or liquidity event, with 53 percent of respondents now expecting to wait between 5 - 10 years and another 13 percent indicating beyond 10 years.

• 58 percent of the investors are "single sourced" from a foundation, a family business or an NGO. Participation by corporations and financial industry firms is still relatively light.

• Funds that reported a global focus expected higher rates of return than regional or country-specific funds.

• Some impact investing funds are forming their own in-house pools of capital to invest in different phases of social investments - indicating a need for venture-capital-like "horizontal capital aggregation" for the whole community.

• Over 80 percent of investors reported that they do not use capacity development organizations to assist their portfolio companies. Yet the 50 percent who practiced monthly or greater contact with their investments expected a strikingly higher rate of return. This indicates benefits from "high touch" portfolio management, even if with a CDO.

• Despite evidence that urban-poor regions are better risks for investors than rural-poor, a surprisingly high percentage of investors were agnostic in measuring or choosing urban vs. rural areas for investment.

• Funds who invested for "impact" say they invest more in the entrepreneur and the idea, while financial investors focused on solid business models and execution by the social enterprise.

"This study gets us one step closer to identifying a business life-cycle for social ventures," said Kohler, "as well as to gather ready-made pools of capital into a syndication structure that accelerates social enterprise development more efficiently."

The authors plan to implement a pilot program in the near future to put into practice some of the suggestions from the study.

Thursday, July 14, 2011

Stereotypes can affect how women angels' invest


Stereotypes about gender affect investment decision-making, even among successful women, researchers concluded in a new study on how gender affects investing strategies.

Examining angel funds, or groups of wealthy investors who pool resources to make investments into a diverse array of start-up businesses, researchers found that the proportion of women angel investors in a group is related to the number of investments made by the group. When women comprised more than 10 percent of the investment group, their presence became associated with increased investments.

John Becker-Blease, of Oregon State University, and Jeff Sohl, of the University of New Hampshire , co-authored the study, which is out in the July issue of the journal Entrepreneurship, Theory and Practice.

"It is well-documented that women are, on average, more cautious investors than men and so we expected to find that the higher the proportion of women in the angel groups, the less likely the angel group was to make an investment," said Becker-Blease, an assistant professor of finance in OSU's College of Business.

However, the study results surprised them.

"Contrary to our expectations, we found that only when women were in a very small minority was their presence associated with a decrease in investments," Becker-Blease said.

The researchers said this phenomenon could be related to something psychologists call "stereotype threat." According to this theory, when a stereotype exists about a person, that person will behave in a manner consistent with that stereotype when they are in a situation that highlights, or accentuates, this aspect of their status, whether that is gender, race or ethnicity.

Becker-Blease cited a past study that showed Asian female students performed relatively well on a math exam when their ethnic status was highlighted, and relatively poorly when their gender status was highlighted. Becker-Blease and Sohl believe something similar might be happening in angel groups.

"When there is only a handful of women participating in these groups, their status as women, who are less aggressive investors, induces greater reluctance to invest," Becker-Blease said, "but as the proportion of women increases, women investors are made less aware of their status, and invest with greater confidence."

According to Becker-Blease, these results are provocative and speak to the potential benefits of having more women investors participate in these important sources of funding for new businesses.

Tuesday, July 12, 2011

M&As Lag as Public Markets Warm Up to Venture-Backed Companies

Dow Jones VentureSource: Consolidation Among Start-ups Accounted for 9% of M&As

IPOs in Double-Digits for Three Consecutive Quarters for First Time Since 2007

As the public markets warm up to venture-backed companies, corporate acquirers are pulling back. In the second quarter of 2011, 109 venture-backed companies achieved liquidity, netting $11.2 billion, according to Dow Jones VentureSource. That represents a 13% decrease in exits and 26% increase in capital raised from the second quarter of 2010.

"Deal-making is in a limbo– unstable global markets and sky rocketing IPO valuations are giving both acquirersand companies sufficient cause to wait,” said Jessica Canning, director of global research for Dow Jones VentureSource. “Everyone is watching the performance of recent IPOs to see how justifiable valuations really are.”

Consolidation Among Venture-Backed Companies Accounted for 9% of M&As

In the second quarter, acquirers bought 91 companies for $9.2 billion, a 13% drop in M&A activity from the same period last year when 105 acquisitions netted $7.2 billion. Information Technology (IT) was the most active area for acquisitions. Driven by interest in Software companies, the IT industry saw 38 M&As net $3 billion. Consumer Services, which includes consumer Web companies, was the second most active industry for acquisitions as 21 companies were bought for $2.1 billion.

While most M&As involved corporations buying venture-backed companies, eight start-ups sold themselves to other venture-backed companies, accounting for 9% of the quarter’s M&As.

"Consolidation is happening within the venture ecosystem as companies like Zynga, Jive Software and others pursue significant growth while still privately held,” said Ms. Canning.

Buyouts of venture-backed companies by private equity firms also tracked below the same period last year. Private equity firms bought four venture-backed companies for $283 million in the most recent quarter, down slightly from the same period last year when private equity firms bought five companies for $832 million.

The $64 million median amount paid for a venture-backed company in the most recent quarter was slightly less than the $66 million median in the same period last year.

To reach an M&A or buyout, companies raised a median of $19 million in venture financing, on par with the same period last year, and took a median of 5.6 years to build their company, slightly more time than the 5.5-year median in the second quarter of last year.

The largest M&A deal in the second quarter belonged to Berkeley, Calif.-based Plexxikon, a developer of small molecule pharmaceuticals, which was acquired by Daiichi Sankyo for $805 million.

IPOs in Double-Digits for Three Consecutive Quarters

Fourteen venture-backed companies went public in the second quarter, raising $1.7 billion, a slight drop in activity from the 15 IPOs that raised $859 million during the same period last year. With a total of 25 IPOs in the first two quarters, however, IPO activity is tracking ahead of the first six months of 2010, and for the first time since 2007 IPO activity has been in double-digits for three consecutive quarters.

"IPOs have been steady but the window has yet to fling wide open,” said Scott Austin, editor of Dow Jones VentureWire. “Despite talk of tech bubbles and excitement around offerings from Internet companies like LinkedIn and Pandora, macroeconomic issues could keep a tight hold on the IPO window as investors may be encouraged to stick with safer securities.”

Currently, 45 U.S. venture-backed companies are in IPO registration.

The median amount of venture capital raised prior to an IPO rose 55% to $109 million in the second quarter of 2011. The median amount of time it took a company to reach liquidity fell to 8.6 years from 9.3 years in same period last year.

For information on Dow Jones VentureSource’s research methodology, visit For general information about Dow Jones Private Markets, visit

U.S. VC Fund-Raising Rose 19% in First Half

European Fund-Raising Dropped 45%

Early-Stage Funds Lagged as Late-Stage Commitments Picked Up

In the U.S., brand name venture firms raising anything other than an early-stage fund were the biggest draw for limited partners during the first half of 2011. Capital raised for venture funds rose 20% over the same period a year ago, hitting $8.1 billion, but the number of funds that held closings plummeted 38% to 50 funds, according to Dow Jones LP Source. Seven firms were responsible for raising $6.3 billion, almost 80% of the total capital raised during the first half. In the first half of 2010, 81 U.S. venture funds raised $6.8 billion.

The story for European venture funds was one of struggle as these funds recorded the worst first half since 2004. Fundraising for European venture funds declined 45% to $1.1 billion for 16 funds. During the same period last year, European venture funds raised $2 billion for 26 funds.

“This year and next will be make-or-break for scores of venture capital firms in search of new funds,” said Scott Austin, editor of Dow Jones VentureWire. “Limited partners have made it clear they're in no mood to back underperforming firms, so the competition for capital will be fierce.”

Across the U.S. private equity spectrum, which includes venture capital, funds raised $64.7 billion in the first half, a 35% jump over the same period last year. European private equity funds collected $24 billion, a 48% increase over the year-ago period.See detailed PE breakout.

U.S Funds: Early-Stage Funds Lagged as Late-Stage Commitments Picked Up

In the U.S., excitement about highly valued Internet companies seems to have eclipsed early-stage fund-raising. Twenty-eight early-stage funds raised $1.1 billion in the first half, a 48% drop in fund closings and capital committed. If early-stage funds continue at this pace, they will collect less than half of the $5.2 billion raised in 2010.

Late-stage funds had their strongest first half since 2007. In the first half of 2011, seven late-stage funds raised $2.9 billion, well above the same period last year when two funds raised $150 million.

Despite a 40% drop in fund closings and 8% drop in capital raised, multi-stage funds were still the biggest capital collector in the first half, raising $4.1 billion for 15 funds. However, this category’s strength came from the first quarter’s fund closings as just two firms raised $99 million during the second quarter.

Europe: LPs Focus on Early-Stage Funds

Limited partners for European funds favored early-stage vehicles as 11 funds collected $952 million during the first half. This was a 30% drop in capital collected from the same period a year earlier. Multi-stage funds fell out of favor with LPs as five funds raised $150 million, a 70% drop in capital raised from the first half of 2010.

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. For more information about Dow Jones LP Source or Private Equity Analyst, visit

Private Equity Fund-Raising Continues Slow Climb in the U.S. and Europe

Dow Jones LP Source: U.S. Private Equity Funds Raised $64.7 Billion, European Funds Raised $24 Billion During First Half; Buyout and Venture Funds Helped Fuel the Recovery

Limited partners gradually picked up their commitment pace to private equity during the first half of 2011. According to figures from Dow Jones LP Source, U.S. private equity funds raised $64.7 billion for 201 funds in the first half of the year, a 35% increase in capital committed over the $47.8 billion raised by 225 funds during the first half of 2010. Buyout and venture capital funds drove the rebound in the U.S. and helped put the industry on pace to exceed last year’s fund-raising total.

European private equity funds collected $24 billion for 62 funds during the first half, up 48% from the $16.2 billion raised for 76 funds a year earlier. While fund-raising figures are still well below levels seen before the economic downturn, the first half of 2011 was the strongest first half for fund-raising since 2008.

“After three consecutive years of declining fund-raising, the industry has finally begun to dig its way out of the crater created by the U.S. financial crisis in late 2008,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “There’s an abundance of fund managers with strong track records that are back in marketing mode and investors appear to have regained some level of confidence in the asset class.”

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.

Buyout Funds Spring Back to Life

Thanks partly to a greater number of firms looking to raise funds of more than $1 billion, capital flowed into Buyout funds. U.S. Buyout funds raised $46.1 billion across 94 funds during the first half of 2011. This was almost double the capital raised for Buyout funds during the same period last year, one of the worst fund-raising years in recent history.

“In 2009 and 2010, the multi-billion fund was like the California Condor in the 1980s,” said Kreutzer. “You knew it once existed, but who ever really saw one? This year, while they aren’t exactly plentiful, the multi-billion funds have finally come off of the endangered species list.”

Within the Buyouts sector, fund-raising volumes were boosted by Industry-focused funds, which saw fund-raising almost double to $11.9 billion, and Restructuring and Distressed Debt vehicles, which saw fund-raising jump 50% to $12.6 billion.

In Europe, Buyout funds, which accounted for 84% of the region’s private equity industry, secured $20.1 billion for 36 funds during the first half, up from $9.3 billion raised for 35 funds a year earlier. As in the U.S., funds targeting more than $1 billion captured the bulk of the money.

Mezzanine and Secondary Fortunes Decline

U.S. funds focused on Mezzanine strategies saw a decline during the first half of 2011, as they attracted $2 billion for 13 funds, a 56% decrease in commitments from the same period in 2010. Meanwhile, the amount raised by Secondary funds dropped 62% to $3.2 billion for 11 funds.

“Mezzanine and secondary funds typically enjoy more popularity during market downturns,” said Kreutzer. “Many of the experienced managers in each of these sectors raised capital in 2009 or 2010, so it’s hardly a surprise that their numbers have dropped off this year.”

Two European Mezzanine funds raised $885 million in the first half of 2011, down 8% from the same period a year earlier. Secondary funds focused on Europe ran counter to the trend in the U.S. as four funds raised $1.7 billion, a 66% increase in capital committed over the first half of 2010.

U.S. Venture Fund-Raising Shines for Some, but European Funds Still Struggle

In the U.S., brand name venture firms raising anything other than an early-stage fund were the biggest draw for limited partners during the first half of 2011. Capital raised for venture funds rose 19% over the same period a year ago, hitting $8.1 billion, but the number of funds that held closings plummeted 38% to 50 funds. Seven firms were responsible for raising $6.3 billion of the $8.1 billion collected during the first half.

The story for European venture funds was one of struggle as these funds recorded the worst first half since 2004. Fund-raising for European venture funds declined 45% to $1.1 billion for 16 funds.

Monday, July 11, 2011



Number of Funds Raising Dollars at 16 Year Low

Thirty-seven US venture capital funds raised $2.7 billion in the second quarter of 2011, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 28 percent increase by dollar commitments, but a 23 percent decline by number of funds compared to the second quarter of 2010, which saw 48 funds raise $2.1 billion during the period. US venture capital fundraising during the first half of 2011 totaled $10.2 billion from 76 funds, a 67% increase by dollars compared to the first half of 2010 but a 15% decrease by number of funds, marking the lowest number of funds garnering commitments since the first half of 1995.

Fundraising by Venture Funds

Year Funds Venture Capital ($M)
2007 233 30,739.7
2008 212 25,814.7
2009 153 16,191.9
2010 162 13,346.3
2011 76 10,242.2
1Q'09 58 4,945.9
2Q'09 39 4,844.2
3Q'09 34 2,332.0
4Q'09 47 4,069.8
1Q'10 45 4,033.8
2Q'10 48 2,098.4
3Q'10 53 3,593.8
4Q'10 45 3,620.3
1Q'11 42 7,551.4
2Q'11 37 2,690.7
Source: Thomson Reuters & National Venture Capital Association

“The fact that the number of firms raising money successfully remains at such low levels confirms an ongoing contraction of the venture capital industry, which will serve well those funds that can obtain commitments – but that group is becoming more and more narrow,” said Mark Heesen, president of the NVCA. "While a smaller venture industry will intuitively produce higher returns, it is critical that the mix of funds remain geographically diverse and cover a broad base of industries if we expect to contribute to economic growth and innovation at the levels we have historically. For that reason, we would like to see more funds raise money in the second half of the year."

There were 24 follow-on funds and 13 new funds raised in the second quarter of 2011, a ratio of 1.8-to-1 of follow-on to new funds. The largest new fund reporting commitments during the second quarter of 2011 was New York-based Level Equity Growth Partners I, L.P., which raised $120 million in its inaugural fund. A “new” fund is defined as the first fund at a newly established firm, although the general partner of that firm may have previous experience investing in venture capital.

VC Funds: New vs. Follow-On
New Follow Total
2007 64 169 233
2008 58 154 212
2009 39 114 153
2010 49 113 162
2011 22 54 76
1Q'09 10 48 58
2Q'09 12 27 39
3Q'09 12 22 34
4Q'09 12 35 47
1Q'10 14 31 45
2Q'10 16 32 48
3Q'10 19 34 53
4Q'10 13 32 45
1Q'11 10 32 42
2Q'11 13 24 37
Source: Thomson Reuters & National Venture Capital Association

Second quarter 2011 venture capital fundraising was bolstered by two fund commitments from Palo Alto-based Accel Partners, which accounted for 50 percent of this quarter’s fundraising total. Accel Growth Fund II, L.P. raised $875 million during the quarter, while Accel XI, L.P. raised $475 million.


The Thomson Reuters/National Venture Capital Association sample includes U.S.-based venture capital funds. Classifications are based on the headquarter location of the fund, not the location of venture capital firm. The sample excludes fund of funds.
Effective November 1, 2010, Thomson Reuters venture capital fund data has been updated in order to provide more consistent and relevant categories for searching and reporting. As a result of these changes, there may be shifts in historical fundraising statistics as a result of movements of funds between primary market & nation samples and/or between fund stage categories.

About Thomson Reuters

Thomson Reuters is the world's leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, healthcare and science and media markets, powered by the world's most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs more than 55,000 people and operates in over 100 countries. For more information, go to

About National Venture Capital Association

Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. According to a 2009 Global Insight study, venture-backed companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the United States in 2008. As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its 400 plus members through a full range of professional services. For more information about the NVCA, please visit

Friday, July 1, 2011



Driven by internet specific companies, venture-backed IPO exit activity showed marked volume increases over the second quarter of last year as the number of M&A exits returned to 2009 levels with disclosed dollar value remaining in line with recent quarterly volume. Twenty-two venture-backed IPOs valued at $5.5 billion came to market in the second quarter of 2011, according to the Exit Poll report by Thomson Reuters and the National Venture Capital Association (NVCA). By dollars this quarter marked the strongest three-month period for venture-backed IPOs since the third quarter of 2000. For the second quarter 79 venture-backed M&A deals were reported, 36 which had an aggregate deal value of $5.4 billion.

"When assessing the health of the venture-backed exit markets, it is important to differentiate between hype and reality,” said Mark Heesen, president of the NVCA. “You need to look beyond the handful of high profile companies that have gone public or registered this quarter and examine what is happening with the broader market. If you do so, what you will see is an IPO market that is gradually improving from one of the most challenging exit environments ever faced by the venture industry and an acquisitions market that remains strong and is realigning itself with a new reality. We are not experiencing an IPO bubble and these numbers certainly do not suggest that one is forming. In fact, we would like to see more public offerings and continued improvements in post IPO performance over the rest of 2011 in order to remain on the road towards recovery.”

IPO Activity Overview

There were 22 venture-backed IPOs valued at $5.5 billion in the second quarter of 2011, more than triple the dollar value seen during the second quarter of 2010 and a 29 percent increase by number of offerings compared to last year at this time. Fourteen of this quarter’s offerings were from companies based in the United States while companies in France, Canada and Russia added one IPO each. Five of this quarter’s IPOs were from companies based in China.

Fourteen of the 21 IPO exits for the quarter came from the Information Technology sector accounting for a total of $3.9 billion. Eleven of the companies to go public in the IT sector were Internet Specific raising $3.5 billion, the largest quarterly total for this sub-sector on record. By number of deals this quarter was the strongest three-month period for internet specific new listings since the third quarter of 2000 when 15 companies also went public.
In the largest IPO of the quarter Russian internet provider Yandex (YNDX) raised $1.3 billion on NASDAQ on May 24th. The offering was the second largest IPO in the Internet Specific sector on record behind Google’s $1.7 billion IPO in 2004. .

Beijing-based Renren Inc (RENN), a social networking Internet platform in China, raised $743 million on the New York Stock Exchange NASDAQ on May 4th ranking as third biggest venture-backed internet specific IPO on record.

For the second quarter of 2011, 10 companies listed on the New York Stock Exchange (NYSE) and 12 listed on the NASDAQ stock exchange.

Of the 22 IPOs in the second quarter, 15 are trading at or above their offering prices as of June 30, 2011. Forty-six U.S. venture-backed companies are currently filed for an initial public offering with the SEC.

Mergers and Acquisitions Overview

As of June 30, 2011, 79 venture-backed M&A deals were reported for the second quarter, 36 which had an aggregate deal value of $5.4 billion. The average disclosed deal value was $150.3 million, up 24 percent from Q1 2011. By total disclosed deal value second quarter volume marks a 56 percent increase from the second quarter of 2010.

The information technology sector led the venture-backed M&A landscape with 56 deals and a disclosed total dollar value of $2.7 billion. Within this sector, Internet specific and Computer software and services accounted for the bulk of the targets with 21 and 20 transactions, respectively, across these sector subsets. For the first half of 2011, venture-backed M&A activity is up 31 percent by disclosed value and down eight percent by number of deals, compared to the first half of 2010.

In the biggest venture-backed M&A deal of the quarter, Japan’s Daiichi Sankyo acquired Plexxikon Inc, a Berkeley-based biopharmaceutical company, for $805 million.

Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 38 percent of the total during second quarter 2011. Venture-backed M&A deals returning less than the amount invested accounted for 26 percent of the quarterly total.

“While we are anticipating increases in the number of venture-backed exits in the second half of the year, we can not stress the importance of stability right now,” Heesen said. “The on-going debt limit debate combined with continuing uncertainty regarding governments and economies in many regions of the world could impact the capital markets and corporate spending on acquisitions in the second half of the year. We hope that will not be the case, but need to be prepared for it nonetheless."

Complete report