July 20, 2005--A survey released Monday by the National Venture Capital Association and Thomson Venture Economics found that venture capital funds raised $6.1 billion in the second quarter of 2005, a 6.5% increase over last quarter and an 87.7% increase compared with the same period in 2004.
The surge was driven by large firms, which are beginning to create new funds as companies from their last big round of early-stage investment -- notably Google and eBay -- reach maturity. "Now it's time for the industry to go back and start working on the next crop of companies," said NVCA Vice President of Research John Taylor.
This influx of cash has enabled VCs to put more of their money in start-up and seed capital. Over 50% of the money invested in new funds will be used for early-stage investments, which accounted for around 45% from 2002 to 2004, said Daniel Benkert, a senior analyst at Thomson. Though Benkert cautioned that the focus on early-stage investment was "business as usual for VCs," he said the increase was important because "It shows that the money is definitely flowing in."
The growth in VC fundraising is good news for entrepreneurs, said Anthony Warren, a professor of entrepreneurship at Pennsylvania State University. "When venture capitalists raise new money, they have longer for the funds to mature," which allows them focus on early-stage opportunities. While Taylor pointed out that the new funds being created are about half the size of what they were at the height of the bubble -- the product of prudence among VCs -- he added that investors are becoming more willing to devote their time and energy to small companies. "Early-stage funds are growing in the share of dollars, but also in the mind-share of the venture capitalists' time," he said.