Strong Fourth Quarter for Venture Fund-Raising But Year-End Totals Still Lackluster

U.S. early-stage funds stage comeback in fourth quarter

European venture fund-raising sets record low


Driven by limited partners’ strong appetite for early-stage funds, U.S. venture capital fund-raising had a strong fourth quarter that pushed the full-year fund-raising total just beyond that of 2010. U.S. venture capital funds raised $16.2 billion across 135 funds in 2011, a 5% increase in capital raised despite a 12% decline in the number of funds that won commitments, according to Dow Jones LP Source. Annual fund-raising, however, is now just over half the 2008 total, showing that the industry has not yet bounced back from the recession. In the fourth quarter, venture funds raised $5.2 billion, more than was raised during the second and third quarters combined.

In Europe, venture capital fund-raising set a record low as 41 funds raised $3 billion in 2011, a 20% decline in the number of funds that attracted capital and an 11% decline in capital raised compared with 2010. The fourth quarter was the strongest of the year as funds raised $991 million.

“While brand-name firms are able to raise funds, most firms face significant challenges in fund-raising,” said Zoran Basich, editor of Dow Jones VentureWire. “Limited partners remain wary of the industry after a decade in which returns have not matched expectations. Unless that changes, limited partners are likely to stick with what they view as the tried-and-true fund managers.”

U.S. Early-Stage Funds Stage Comeback in Fourth Quarter

In the U.S., commitments to early-stage funds got a sudden boost in the fourth quarter as a handful of established firms raised funds during the final three months of the year. Early-stage funds raised $3.6 billion in the fourth quarter, making it the best quarter since 2007. For all of 2011, 83 early-stage funds raised $5.8 billion, a 14% decline in the number of funds that won commitments compared with 2010 but a 6% increase in capital raised.

Multi-stage funds started strong in 2011 by raising $4.2 billion in the first quarter, but interest quickly dropped off. For all of 2011, 37 multi-stage funds raised $5.7 billion, a 21% decline in the number of funds that raised capital and a 24% decline in capital committed from 2010.

Capital raised for later-stage funds spiked 91% in 2011 as 15 funds raised $4.7 billion.

European LPs Concentrate on Early-Stage Funds

Early-stage funds garnered most of the capital committed to European venture capital funds in 2011, raising $2.1 billion across 27 funds. This represents a 23% increase in capital committed, although the number of funds that raised capital remained flat.

Capital committed to multi-stage funds declined 45% as 13 funds raised $800 million. Capital raised by late-stage funds was halved in 2011 as one fund raised $114 million.