U.S. venture capital funds had a bit more success raising money in the third quarter compared to the previous quarter, despite big shifts in government regulations that are changing the methods by which startups can attract financing. According to the National Venture Capital Association and Thomson Reuters, 56 funds raised $4.1 billion during the quarter.
That was a 14 percent increase in the number of funds raising cash, and it also marked the biggest number of funds raising cash in the past 12 months. It was also up from the 49 funds that raised $3.2 billion in the second quarter.
However, in what continues to be an ongoing trend in the VC industry, money continues to flow to the absolute top performers. In the third quarter, the top five venture capital funds accounted for 58 percent of total dollars raised. And overall dollar commitments also are dropping compared to last year, down 29 percent.
“The slightly larger number of firms raising money in Q3 is an indication that there’s some improvement in distributions and prospects,” said John Taylor, NVCA head of research. “The gradually improving IPO market, along with better quality exits on the M&A side, are signaling to limited partners that venture funds can still yield attractive returns. Smaller fund sizes are not surprising as venture capitalists are looking to invest in less capital intensive sectors and are focused on deploying capital more efficiently.”
VC returns have shown some improvement in recent months, but for many historical timeframes they are still not beating the public markets. That’s making it harder for VCs — especially newer firms or those not in the top 10 percent — to raise capital. In
In Seattle, a number of VC firms have decided not to raise new funds, including OVP Venture Partners and Frazier Technology Ventures. Ignition raised a fund this year, though at $150 million it was smaller than past funds and also involved a radical change in its investment team. However, Frazier Healthcare Ventures — a Seattle-based investor in life sciences — just last month closed a new fund at $377 million, above its $300 million target. Seattle’s Madrona Venture Group raised a $300 million fund in June 2012, the largest in its history.