RESEARCH TRIANGLE PARK, N.C. — Venture capital fundraising fell dramatically in the third quarter, but 2006 continues to shape up as one of the strongest for fundraising since 2002, according to new data released Monday.
Fifty-two venture firms raised $4.9 billion between July and September. That’s a sharp drop from the $13.4 billion raised between April and June, the National Venture Capital Association and Thomson Financial reported.
However, So far this year, funds have pulled in $25.4 billion. To exceed the $27.0 billion raised in 2005, the venture industry would need only to have a minimally successful quarter.
And a one-quarter drop doesn’t worry Jeff Barber of PricewaterhouseCoopers in Raleigh, who tracks the venture industry.
“Year to date has been phenomenal,” Barber told WRAL Local Tech Wire. “Quarter to quarter, you are going to get some variation. You really need to look at a longer term.
“I don’t think the third quarter is any kind of an indication that there is a slowdown out there,” he added. “There is already a lot of money out there for investment.”
More money is coming, too. Southern Capitol Ventures in Raleigh is in the process of raising a new fund, and NC IDEA is closing on an $11 million fund.
Venture funds raised $38.2 billion in 2002. The total dropped sharply in 2003 to $10.7 billion then rose to $18.6 billion in 2004.
Despite the quarterly dip, fund raising continues to exceed venture investments. According to PricewaterhouseCoopers statistics, venture firms invested $21.8 billion in 2002 – $15.4 billion less than the amount raised. In 2003, investments exceeded fund-raising by $9 billion. In 2004, investments topped new funds by $3.4 billion. Last year, new funds exceeded investments by $4.4 billion.
Through the first half of 2006, venture firms invested $12.5 billion — or less than new funds raised in the second quarter alone.
PWC and the NVCA will release third-quarter investment figures next week.
Mark Heesen, president of the NVCA, welcomed the slowdown in fundraising.
“At a time when there is a great deal of discussion about whether there is too much money entering private equity, this quarter’s lower fundraising levels, particularly on the venture capital side, are both expected and welcome,” Heesen said in a statement. “We are nearing the end of the three year fundraising cycle which will raise approximately $75 billion for venture capital firms. Most venture firms have raised their funds and are now actively investing with a 5-7 year horizon in mind.”
Early stage venture funds set the pace in the third quarter, with 27 of them pulling in $3.5 billion.
Money continues to pour into the buyout and mezzanine level funds. Buyout funds raised $22.86 billion in the third quarter.
So far in 2006 103 funds have pulled in $83.97 billion compared to $96 billion in 2005 and $51 billion in 2004.