Tuesday, July 12, 2011

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 http://privateequity.dowjones.com.

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