RESEARCH TRIANGLE PARK – Venture capital funds continue to raise funds at a blistering pace, as 141 funds garnered nearly $33 billion in the first quarter of 2021, which if the pace continues, means that 2021 could be the first year when fundraising surpasses $100 billion in total capital raised by the industry, according to the latest industry data,
But early-stage capital remains hard to get.
“The money going into VC funds continues to increase each year but if you look closely, that money is being concentrated in larger, later stage funds,” said David Gardner, founder and managing partner of Cofounders Capital.
This increase is due, in part, to the prevalence of mega-funds, defined by the report as funds that closed at or in excess of $500 million, with 13 such funds closing in the first quarter of the year, accounting for nearly 45 percent of all capital raised in that timespan.
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But first-time funds are struggling. The quarter only saw 25 first-time funds, raising a total of $1.4 billion. This isn’t new to 2021, it is a trend that seems to have carried over from 2020, and even 2019, after 2018 saw a total of 159 funds close $12.3 billion, the high-water mark for this category in the last decade.
“Early stage funds are still well underserved in North Carolina from a capital perspective,” said Gardner, adding that folks who manage a fund typically prefer to run larger, later-stage funds because the compensation for doing so is higher. “There is a lot of heavy lifting involved in running an early stage fund and because these funds are smaller, so is the carry. It’s more of a labor of love.”
Golden Bell Partners closed a $178.65 million fund in February, and SJF Ventures closed a $175 million fund the same day. Charlotte’s CFV Ventures closed the Carolinas Fintech Ventures fund with $5.66 million, and Cofounders Capital raised a Fund I Sidecar from prior investors, bringing in $1.91 million.
“We have raised a lot of follow on money for our various portfolio companies,” said Gardner. “We have not found it any more difficult than usual of late. There is always money available to companies that are growing and hitting their numbers once their thesis is proven.”
To attract capital based outside of North Carolina, said Gardner, companies must prove themselves, and in order to prove themselves, they’ll need early-stage funding from venture capital based in the state, as well as the continued investment in entrepreneurial ecosystems.
“Building that innovation economy is all about having local early stage funds to plant those seeds,” said Gardner. “You’ve just got to love startups, innovation and first time entrepreneurs to do this stuff.”
