|
Venture Capital Investment & Fundraising Continue To Slow In Third Quarter
Venture Capitalists Remain Committed to Entrepreneurs with $7.7 billion in New and Follow-on Investments and $6.2 billion Raised by Venture Capital Funds
October 29, 2001 - Newark, NJ - Venture capital investment and fundraising continued to slow in the third quarter of this year, according to Venture Economics and the National Venture Capital Association (NVCA). During the quarter, venture capitalists invested $7.7 billion in 873 companies while 46 venture capital funds raised $6.2 billion.
Venture Capital Investment (Disbursements)
The $7.7 billion invested represents a 31% decline from the previous quarter and a 73% decline from the year-ago period, when venture capital investments peaked at an all-time high. Putting this decline into historical perspective, Q3 2001 investment levels are comparable to Q1 1999 investment levels, when $7.2 billion was invested - an amount considered extremely healthy at that time.
Despite tough economic conditions, venture capitalists continue to show committed resolve on behalf of entrepreneurs. Most are spending the majority of their time and capital resources on existing portfolio companies, as demonstrated by the fact that 81% of total venture investment in the third quarter went to follow-on investments. However, venture capitalists are still finding promising new opportunities in a wide range of sectors, including software, communications, Internet infrastructure, medical/health and biotechnology.
"Although these are clearly difficult times for all business sectors, the venture industry will persevere. Veterans in our industry recognize this downturn as part of the long-term venture capital cycle. Real value can be created in down cycles by sticking with committed entrepreneurs with strong business models and the tenacity to see their ideas through," commented Mark G. Heesen, NVCA President.
"As an industry focused on long-term opportunities, venture capitalists are actively engaged in looking for creative and high-impact ways to sustain economic growth. History shows that some of the greatest successes of the next decade will be funded during this down cycle. In the early '90s, during the last downturn, companies such as Palm, Intuit, and McAfee received their first round of venture financing," commented Tom McConnell, partner at New Enterprise Associates and chairman of the NVCA.
Northern California continued to attract the largest portion of capital investment in the third quarter with 30.5% of total volume and 26.8% of all first-round financings. When looking at total venture financing in the third quarter, New England ranked second with 13% and the Southwest region came in third with 9.5%. Last quarter marks the first time the Southwest region has ranked within the top three. However, for first-round financings, the New England region ranked second, and the New York Tri-State region ranked third.
Venture Capital Fundraising
The $6.2 billion raised by 46 funds in Q3 2001 represents a 37% decline from last quarter, when 78 venture funds raised $9.9 billion, and a 78% decline from one year ago (Q3 2000), when 126 funds raised $27.6 billion. Included in this total are 10 first-time funds that raised $336 million. Although many firms are finding it difficult to raise funds in this environment, experienced venture capitalists continue to raise impressive amounts of capital, which is evidenced by the third quarter's average fund size of $134 million.
During the first three quarters of 2001, venture capitalists raised $34 billion, putting this year on track to be the third-highest year for venture capital fundraising. Venture Economics and the NVCA estimate that as of Sept. 30, the amount of venture capital raised by venture firms but not yet invested, referred to as an "overhang," is $45 billion. This overhang represents a reserve of significant capital resources to sustain the needs of portfolio companies during this challenging economic environment. The overhang would suggest that many venture firms will not need to raise additional funds in the near future because of their sufficient capital reserves and the slower investment pace.
Venture capitalists continue to focus on raising early stage funds knowing that historically these funds have produced the most attractive returns. Of the 46 funds that raised capital last quarter, half had an early-stage focus. The $4.2 billion raised from these 23 funds represented 68% of the $6.2 billion raised. Sixteen balanced stage funds raised $1.3 billion, representing 21% of the total capital raised.
On a regional basis, the lion's share of capital went to the New England area as 11 funds in the region raised $2.4 billion. Northern California also raised 11 funds, bringing in $1.1 billion. These two regions represented 57% of the total amount raised throughout the U.S. this past quarter.
Fundraising efforts of buyout and mezzanine funds are also declining, as 25 funds raised $5.5 billion in Q3 2001, down 45% from the $10 billion raised in Q2 2001. The $5.5 billion raised in Q3 2001 is down 59% from the year-ago period, when 38 funds brought in $13.3 billion.
The quarter's largest private equity fund was a generalist fund raised by Warburg Pincus, LLC. The firm held a first closing of $2.8 billion for Warburg Pincus Private Equity VIII, LP, which holds a target of $5 billion. Generalist funds are those whose mandate is to invest in both venture capital and buyouts deals.
DISBURSEMENT CHARTS
|
Venture Investment By Quarter
|
Time Period
|
No. of
Comp
|
Avg Per
Comp
|
Sum Inv.
($mil)
|
1999-1
|
876
|
$8.24
|
$7,216.97
|
1999-2
|
1196
|
$10.40
|
$12,434.87
|
1999-3
|
1324
|
$10.55
|
$13,965.78
|
1999-4
|
1629
|
$14.30
|
$23,293.41
|
2000-1
|
1782
|
$15.08
|
$26,864.22
|
2000-2
|
1891
|
$14.51
|
$27,426.42
|
2000-3
|
1814
|
$15.70
|
$28,470.29
|
2000-4
|
1529
|
$13.93
|
$21,293.91
|
2001-1
|
1135
|
$10.72
|
$12,169.58
|
2001-2
|
1021
|
$10.90
|
$11,133.98
|
2001-3
|
873
|
$8.84
|
$7,716.37
|
Venture Investment By Year
|
Time Period
|
No. of
Comp
|
Avg Per
Comp
|
Sum Inv.
($mil)
|
| 1995 |
1346 |
$4.42 |
$5,942.96 |
| 1996 |
2014 |
$5.84 |
$11,771.09 |
| 1997 |
2690 |
$6.40 |
$17,217.69 |
| 1998 |
3160 |
$7.18 |
$22,686.14 |
| 1999 |
3969 |
$14.34 |
$56,911.02 |
| 2000 |
5606 |
$18.56 |
$104,054.83 |
| 2001 YTD |
2653 |
$11.69 |
$31,019.92 |
Venture Capital By Industry
|
Company Industry
|
No. of
Comp
|
Avg Per
Comp
|
Sum Inv.
($mil)
|
Pct of
Inv
|
Internet Specific
|
270
|
$7.72
|
$2083.56
|
27
|
Communications and Media
|
119
|
$14.27
|
$1698.71
|
22.01
|
Computer Software and Services
|
200
|
$6.68
|
$1336.6
|
17.32
|
Semiconductors/Other Elect.
|
54
|
$15.15
|
$818.23
|
10.6
|
Medical/Health
|
67
|
$8.36
|
$560.45
|
7.26
|
Biotechnology
|
56
|
$9.78
|
$547.75
|
7.1
|
Computer Hardware
|
30
|
$6.88
|
$206.3
|
2.67
|
Other Products
|
39
|
$4.98
|
$194.38
|
2.52
|
Consumer Related
|
24
|
$7.63
|
$183.07
|
2.37
|
Industrial/Energy
|
14
|
$6.24
|
$87.32
|
1.13
|
Venture Capital By Stage
|
Company Industry
|
No. of
Comp
|
Avg Per
Comp
|
Sum Inv.
($mil)
|
Pct of
Inv
|
Expansion
|
420
|
$9.88
|
$4150.12
|
53.78
|
Later Stage
|
134
|
$12.04
|
$1613.83
|
20.91
|
Early Stage
|
199
|
$7.51
|
$1493.91
|
19.36
|
Special Situation/Other
|
85
|
$4.00
|
$340.42
|
4.41
|
Startup/Seed
|
34
|
$2.19
|
$74.46
|
0.96
|
Industrial/Energy
|
14
|
$6.24
|
$87.32
|
1.13
|
| Buyout/Acquisition |
4
|
$10.91
|
$43.62
|
0.57
|
Venture Capital By Region
|
Company Location
|
No. of
Comp
|
Avg Per
Comp
|
Sum Inv.
($mil)
|
Pct of
Inv
|
N. California
|
225
|
$10.47
|
$2355.47
|
30.53
|
New England
|
110
|
$9.17
|
$1008.64
|
13.07
|
Southwest
|
68
|
$10.74
|
$730.18
|
9.46
|
New York Tri-State
|
86
|
$7.78
|
$669.42
|
8.68
|
S. California
|
69
|
$9.4
|
$648.36
|
8.4
|
Mid-Atlantic
|
59
|
$6.68
|
$394.18
|
5.11
|
Rocky Mountains
|
28
|
$13.52
|
$378.55
|
4.91
|
Ohio Valley
|
39
|
$9.13
|
$356.11
|
4.61
|
Northwest
|
47
|
$7.19
|
$337.76
|
4.38
|
Great Lakes
|
39
|
$7.46
|
$290.82
|
3.77
|
Southeast
|
56
|
$4.76
|
$266.52
|
3.45
|
Great Plains
|
33
|
$6.94
|
$229.07
|
2.97
|
South
|
11
|
$4.28
|
$47.09
|
0.61
|
FUNDRAISING CHARTS
|
Commitments to Private Equity Funds By Quarter
|
Quarter
|
Number
of Funds
(VC)
|
Committed
Amount
($Billions)
|
Number
of Funds
(Buyout & Mezz.)
|
Committed
Amount
($Billions)
|
Number
of Funds
(Generalist PE)
|
Committed
Amount
($Billions)
|
Q3 '01
|
46
|
$6.17
|
25
|
$5.47
|
2
|
$3.40
|
Q2 '01
|
78
|
$9.91
|
27
|
$10.05
|
2
|
$0.14
|
Q1 '01
|
109
|
$17.90
|
43
|
$14.48
|
4
|
$0.31
|
Q4 '00
|
179
|
$25.08
|
48
|
$22.25
|
4
|
$0.46
|
Q3 '00
|
126
|
$27.63
|
38
|
$13.31
|
3
|
$0.23
|
Q2 '00
|
185
|
$31.74
|
47
|
$31.41
|
5
|
$1.00
|
Q1 '00
|
165
|
$22.31
|
39
|
$12.01
|
3
|
$0.52
|
Q4 '99
|
199
|
$29.38
|
66
|
$26.75
|
0
|
0
|
Q3 '99
|
107
|
$11.81
|
41
|
$14.11
|
1
|
$1.30
|
Q2 '99
|
95
|
$9.40
|
42
|
$14.04
|
1
|
$0.02
|
Q1 '99
|
89
|
$9.18
|
50
|
$10.87
|
3
|
$0.18
|
|
* chart does not include Fund of Funds or Other Private Equity funds
|
|
Commitments to New Private Equity Funds By Quarter
|
Quarter
|
Number
of New Funds
(VC)
|
% of Total
Number of Funds Raised
|
% of Total
Amount Raised
|
Number
of New Funds
(Buyout & Mezz.)
|
% of Total
Number of Funds Raised
|
% of Total
Amount Raised
|
Q3 '01
|
10
|
22%
|
5%
|
5
|
20%
|
6%
|
Q2 '01
|
25
|
32%
|
13%
|
5
|
19%
|
4%
|
Q1 '01
|
35
|
32%
|
16%
|
$14.48
|
23%
|
16%
|
Q4 '00
|
58
|
32%
|
21%
|
9
|
19%
|
6%
|
Q3 '00
|
41
|
33%
|
10%
|
7
|
18%
|
6%
|
Q2 '00
|
61
|
33%
|
10%
|
15
|
32%
|
17%
|
Q1 '00
|
35
|
21%
|
8%
|
7
|
18%
|
7%
|
Q4 '99
|
64
|
32%
|
20%
|
14
|
21%
|
8%
|
Q3 '99
|
38
|
36%
|
25%
|
10
|
24%
|
11%
|
Q2 '99
|
30
|
32%
|
26%
|
10
|
24%
|
18%
|
Q1 '99
|
33
|
37%
|
28%
|
18
|
36%
|
28%
|
Venture Economics, a Thomson Financial company, is the foremost information provider for private equity professionals worldwide. Venture Economics offers an unparalleled range of products from directories to conferences, journals, newsletters, research reports, and the VentureXpert (tm) database. For over 35 years, Venture Economics has been tracking the venture capital and buyouts industry. Since 1961, it has been a recognized source for comprehensive analysis of investment activity and performance of the private equity industry. Venture Economics maintains long-standing relationships within the private equity investment community, in-depth industry knowledge and proprietary research techniques. Private equity managers and institutional investors alike consider Venture Economics information to be the industry standard.
Thomson Financial is a US$2 billion provider of e-information services and integrated work solutions to the worldwide financial community. Through the widest range of products and services in the industry, Thomson Financial helps clients in more than 70 countries make better decisions, be more productive and achieve superior results. Thomson Financial is part of The Thomson Corporation (TSE: TOC), a leading global e-information and solutions business with annual revenues of more than US$5.8 billion. The Corporation's common shares are listed on the Toronto and London stock exchanges. For more information on Thomson Financial, visit www.thomsonfinancial.com.
The National Venture Capital Association (NVCA) represents over 400 venture capital and private equity organizations. NVCA's mission is to foster the understanding of the importance of venture capital to the vitality of the U.S. and global economies, to stimulate the flow of equity capital to emerging growth companies by representing the public policy interests of the venture capital and private equity communities at all levels of government, to maintain high professional standards, facilitate networking opportunities and to provide research data and professional development for its members. For more information, visit www.nvca.org.
|
|
|
|
|
