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The VC Bar Bell PDF Print E-mail

Mark Heesen

Written by Mark Heesen   

Today the NVCA and Thomson Reuters issued our Q4 and YE 2012 Venture Capital Fundraising statistics which measure the amount of funds US VC firms are raising from qualified investors.  As expected, the fourth quarter was extremely slow in terms of fundraising activity with just 42 funds raising $3.3 billion dollars.  With many larger funds already closed in the first three quarters of the year and the political and market uncertainty, the dollars stayed largely on the sidelines.  Those funds that did raise were smaller in nature, with the average fund size just $78 million – compared to averages of $91 million, $135 million, and $111 million in Q3, Q2 and Q1 2012 respectively.  This dynamic highlights an important trend that has taken shape and will drive venture investment for the foreseeable future:  Bifurcation.

Venture capital fundraising activity is being driven at two ends of the spectrum:  Large funds – over $700 million – are being raised and deployed by well established firms who are stage agnostic (seed to growth equity), nationally and internationally driven, and have the exit track record to attract limited partners.  The five largest funds raised in 2012 accounted for one third of the dollars raised in the year.

At the other end of the spectrum are the smaller industry or geographically focused funds that are largely looking at seed and early stage investments.  This is where many first time funds are being raised.  Of the 182 funds raising money in 2012, 158 or 87 percent were under $300 million.  And of the 55 first time funds raised in 2012, all but 3 were under $300 million with 88 percent under $100 million.

These numbers suggest to entrepreneurs the types of venture firms that they are likely to be working with over the next decade – large or small.  Each has distinct advantages, but it will be choice many will have to make.  One thing seems clear though:  the mid size funds – that sit in between this barbell structure -- will be fewer going forward as the industry continues to concentrate at either end.

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