Jan 7 2013

That new era of Venture Capital is here

A couple of years ago I posted about what I thought would be the “new era of Venture Capital.” Specifically I was predicting that we’d see a strong barbell effect in VC fundraising. From that post:

I believe what we’re going to see in the venture industry is a bifurcation of fundraising– basically a barbell on the graph of fund sizes. Large, well known, multi-sector and multi-stage “mega-funds” will be able to raise $750MM or greater at one end of the scale, and smaller, more focused funds will raise $250MM or less on the other end – with a relatively small number of funds in the middle. [note: not sure what the problem is with the graphic from the original post, but I do know that it’s not rendering correctly)

Today the NVCA and Thomson Reuters released the Q4 and Year End 2012 fundraising statistics and they show this barbell in full effect. Mark Heesen of the NVCA put up a post on the NVCA blog that describes this:

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. … 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.

Overall we’ve seen somewhat of a rightsizing of the venture industry with a smaller number of firms raising money and fewer firms actively investing – a trend that has been long anticipated but that we’ve only really been seeing in earnest in the last few years. Of course with a large number of small, seed focused funds out there, the chances of getting “stuck” at Series A or B without a good funding option goes up (this is the so-called Series A crunch that we’ve been hearing about of late). That said, I’m a capitalist at heart (and by title) and believe that ultimately the market sorts these sorts of things out (coming your way in 2014: the Series A roll-up fund!).