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Venture fund raising drops to six-year low in first half of 2009

VC fund raising plummets

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Reflecting the economic downturn, lack of exits on Wall Street as well as through mergers and acquisitions, the venture capital industry closed on just $5.1 billion in the first half of this year.

That’s 63 percent less from a year ago and the lowest such total since 2003, Dow Jones Private Equity Analyst reported Wednesday.

Although there have been a handful of successful initial public offerings in recent weeks by venture-backed firms, the overall sector is struggling,” Managing Editor Jennifer Rossa noted.

"Venture capitalists may not need a healthy debt market like buyout investors to do deals, but the venture industry faces plenty of questions of its own, including a moribund liquidity market and almost 10 years of poor investment returns,” she said.

"Right now, most venture firms are more concerned about conserving cash and helping portfolio companies survive than raising a new fund.”

Daniel Primack, writing at Private Equity Hub which is owned by Thomson Reuters, noted the Dow Jones figures are likely to be reflected by his own company’s figures. They will be released in the near future in partnership with the National Venture Capital Association.

“Preliminary data indicates that the overall first-half total will be a bit higher, but the year-over-year change is virtually identical,” Primack said of the Thomson Reuters/NVCA data. “As of last check in the VentureXpert database, U.S.-based VC funds raised just over $2 billion in Q2 2009. That’s more than a 50 percent drop from Q1 2009, and a 79 percent drop from Q2 2008.”

The slowness in VC fund raising “compunds” recent grim news about a10-year lows in liquidity and exits, Dow Jones Private Equity Analyst said.

A year ago, 115 funds raised $5.1 billion.

In 2003, 34 funds raised $2.2 billion.

The same lack of fund-raising was reported across private equity in general with only $54.9 billion being raised. That’s down 64 percent from $152.7 billion in 2008.

Early-stage funds raised $2.2 billion in 32 funds, a drop from $5.2 billion in 43 funds through the first half of 2008.

Multi-stage funds raked in $2.3 billion, down from $5.7 billion a year earlier.

Later-stage funds drew $561 million, half the $1.2 billion of a year ago.

“The often-repeated argument that the best companies are founded during recessions didn’t seem to hold much water with limited partners in the first half of the year,” Rossa said. “The downturn appears to be affecting life sciences and technology-focused investors fairly equally.”

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