October 19, 2005--Private equity firms reported a healthy influx of new investment in the third quarter, according to a quarterly report from Thompson Venture Economics. Pure venture capital funds raised over $5 billion, while buyout and mezzanine debt funds raked in almost $17 billion.

A handful of the biggest funds dominated the venture capital community this quarter, taking in $400 million or more, while the majority raised only $100 million or less. Funds that invest in mature companies garnered the most, with Sequoia Capital Growth leading the pack by raising $520 million.

"It's much harder to be the new kid on the block today, said Mark Heesen, president of the National Venture Capital Association. "These days, limited partners like to go back and invest with the firms they know.

Heesen said the venture capital community has actually restrained the amount of money it has raised. "Venture funds are being extremely disciplined, making sure that they take in only as much money as they'll be able to effectively deploy and manage.

Heesen expects the 2004-2006 venture capital cycle to collect a total of $70 billion dollars, versus the $210 billion raised between 1999 and 2002.

The reports seems to indicate that investors favored larger, more mature companies than the younger breed of entrepreneurial ventures nurtured by venture capitalists. Private equity funds that buy established private and public companies, or make riskier loans to them, took in $3 for every $1 raised by venture capital funds, according to Thompson Venture Economics. In the third quarter, Apollo Investment Fund VI raised almost $5 billion.

A perfect storm of factors may be shifting investors' preference for private equity versus venture capital. According to Heesen, the weak market for initial public offerings, a spate of mergers and acquisitions, and companies avoiding Sarbanes-Oxley, favor private equity funds that take companies off of stock exchanges, and provide financing to help others put off going public.