Hard-pressed private equity firms complain a lot about the difficulties in making classic leveraged buyouts work. Some talk of elbowing in on early-stage investments of the sort which venture capital is known. They won’t have lots of competition from incumbents.
The latest data from the U.S.-based National Venture Capital Association shows new fundraising activity among venture capitalists falling off a cliff, with the lowest number of funds raising money — 25 — in 13 years and the smallest number of dollars committed — $1.7 billion — since 2003.
U.S. venture capital fundraising is now just 14 percent of recent peak levels in the fourth quarter of 2007, when 86 funds raised $12.3 billion. That was the year that $36 billion was ploughed into venture investments. This year, VC will be lucky to attract one-third of that amount.
NVCA President Mark Heesen says industry consolidation is finally in store as some venture firms wait until 2010 or beyond to go back begging for funds from their limited partners, but others throw in the towel. “There will be firms that will not be able to raise a follow-on fund and our industry is positioned to contract over the next five years through this type of attrition,” Heesen says.
The largest fund raised in the second quarter was a follow-on vehicle, Domain Partners VIII,
L.P. It focuses on early stage health care investments and raised $371.1 million for firm Domain Associates.