Fund-Raising By U.S. Venture Capital Funds Fell 55% in 2009: We Have the Boston, San Diego, and Seattle Details, Too

1/11/10Follow @bvbigelow

It’s probably not much consolation for the entrepreneurs who tried to raise venture funding last year, but U.S. venture capital firms raised much less money from their institutional investors in 2009 than they have in recent years.

New figures from Dow Jones LP Source show that fund-raising by venture firms in 2009 fell almost 55 percent compared to 2008, with 120 funds raising slightly more than $13 billion nationwide. In 2008, 204 VC firms raised a total of $28.7 billion from pension funds, university endowments, insurance companies, wealthy individuals, and other investors. It hasn’t been that slow for VCs since 2003, according to Dow Jones.

The drop in VC fund-raising reflected a broader decline across the U.S. private equity spectrum, with buyout firms, funds-of-funds, and mezzanine firms all showing precipitous drops last year. Altogether, Dow Jones says 331 U.S. funds raised a total of $95.8 billion in 2009—down a staggering 68 percent from the $299.9 billion that 508 funds raised in 2008.

It was the first time in six years that private equity firms raised less than $100 billion. Bear in mind, though, that fund-raising by venture firms in 2008 was approaching a record pace until the fourth quarter, when the collapse of Lehman Brothers precipitated a plunge in PE fund-raising.

The only category showing an increase in fund-raising was the secondary firms that specialize in paying bargain-basement prices to take over the companies that conventional VCs are forced to throw overboard. Here’s a breakdown of fund-raising by firms in Xconomy’s cities, as well as nationwide totals for each of the five PE fund categories:

—The Boston region showed the strongest activity by far, with 34 PE funds raising almost $10.4 billion in 2009, according to the Dow Jones figures. More than half, though, was raised by two Boston buyout funds, Charlesbank Capital Partners ($1.5 billion) and TA Associates ($4 billion). Among Boston-area venture firms, Bain Capital Ventures raised the largest amount—$475 million for a fund that remains open. Charles River Ventures ($320 million) and Matrix Partners ($450 million) both raised more funds than they had targeted.

—In Seattle, Dow Jones found that five funds raised a total of nearly $28.6 million last year, although all five remain open to additional investments. Four of those were classified as venture funds: Alliance of Angels; Denny Hill Capital; Divergent Ventures; and Pacific Horizon Ventures. Denny Hill Capital raised the largest amount—$15 million.

—In San Diego, Dow Jones shows just one PE fund-raising in 2009. A buyout fund managed by Capital Creek Partners of suburban Rancho Santa Fe has raised $50.7 million. Last year, we charted the evaporation of San Diego’s hometown VCs and how local tech leaders were struggling to come to grips with the falloff of venture capital activity.

Other highlights that Dow Jones noted in fund-raising nationwide:

—Hellman & Friedman, a corporate buyout firm that has offices in San Francisco and New York, was the standout in the fund-raising gloom, raising $8.8 billion in 2009.

—Buyouts firms, which represent the largest category of private equity funds, saw a 72.5 percent decline in fund-raising last year, with 133 funds raising $53.7 billion. That compares with $195.5 billion raised by 204 funds in 2008.

—Mega funds, defined as funds of $6 billion or more, was a category that saw just six funds raise $14 billion in 2009. In 2008, 12 mega funds raised $75.2 billion.

—Venture capital funds, as reported above, raised $13 billion among 120 funds nationwide, a 54.6 percent drop from 2008.

—Secondaries showed a strong increase, with 21 secondary funds raising $17.5 billion—a new record for the sector and a 57 percent increase in dollars raised over 2008.

—Distressed funds, which are counted as a subsector of buyout funds, raised $14.2 billion across 30 funds, a nearly 67 percent decline in the dollar total from 2008.

—Mezzanine funds raised $3.3 billion among 20 funds, down 92.4 percent from the $43.1 billion raised by 24 funds in 2008.

—Funds of funds raised a total of $8.3 billion across 37 funds nationwide, a 64 percent drop from the $23 billion raised in 2008 by 55 funds of funds.


Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • http://www.globalcaplaw.com James C. Roberts III

    Interesting numbers put in context. Other factors raise some questions:

    1. Is the trend suggested by these numbers a realization of the predictions last year that half the VC/PE funds would disappear because there was too much money chasing too few deals?

    2. How does this compare with VC/PE raises in other countries or regions, especially the EU and China?

    3. Whither greentech/cleantech VC investment?

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