August 3, 2004 -- Everyone knows that when it comes to venture capital fundraising, it's not the hand-over-fist days of 2000 anymore. But, optimists might say, at least it's not 2002.
According to a report by Thomson Venture Economics and the National Venture Capital Association (NVCA), private equity investment funds raised roughly $3 billion of venture capital in the second quarter of 2004, up from $2.8 billion in the first quarter. The report also showed funds looking to gobble up businesses for resale are quickly on the rise.
Venture capital funds are on pace to surpass the $11.1 billion raised in 2003, which was a marked improvement over the $9.1 billion accepted in 2002. However, these gains are only modest considering that 635 venture capital funds raised $106.2 billion in 2000. In 2003, only 128 firms sought investments.
In the second quarter, a total of 48 venture capital funds accepted investments. Even though total investment held firm, the average amount raised by each fund was down from the first quarter when only 41 funds accepted money.
"The lower average size of funds being raised suggests that the firms are being extremely disciplined in the amount of money they are willing to accept," said Mark Heesen, president of the NVCA. "Many of these firms could have taken in more money than they ultimately did."
More than half of the funds accepting investors were those focused on early stage investing. Funds that make only early stage investments raised $1.62 billion of the second quarter total. Balanced funds, or those investing in a variety of stages, accepted the second most money behind early stage funds, raising roughly $1 billion. Late stage funds attracted $128 million and the rest went to expansion and seed stage funds.
Mezzanine and buyout funds, which acquire businesses and make their money by selling them down the road, experienced a huge jump in the second quarter, raising more than $13 billion, up from $2.7 billion in the first quarter.
Three funds accounted for 75 percent of the total. Bain Capital Fund VIII, Hellman & Friedman Capital Partners V and Silver Lake Partners II together raised $8.7 billion.
These funds, the capital of which is meant to be deployed over the next six to seven years, are becoming increasingly popular because their managers believe that many firms are currently under-valued or fairly valued, according to Jesse Reyes, director of research for Thomson Venture Economics.
Venture fundraising in the first half of 2004 far outpaced the first half of 2003. In 2003, 76 funds received roughly $3 billion during the first six months. Through June 2004, 82 funds raised more than $5.8 billion.