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January 21, 2005

Mo' Money

Justin Hibbard

Last year, it seemed like every month brought news of another VC firm raising a new fund. Kleiner Perkins kicked off 2004 by announcing it had closed its eleventh fund at $400 million, and from there, the parade marched on. Get ready for even more. A new report from Private Equity Intelligence Ltd. (PEI) says fundraising activity this year will likely exceed last year. Keep in mind that PEI's numbers include all flavors of private equity--VC, buyout, funds-of-funds, etc.--throughout the world. Still, the numbers are arresting. PEI estimates that private-equity managers worldwide will try to raise more than 800 funds this year worth a total of $250 billion. Last year, managers actually succeeded at raising 284 funds valued at $136 billion.

What does all of this mean to the ongoing debate about whether too much private-equity money is flooding the market and laying the groundwork for El Bubble Numero Dos? The huge divide between the amount managers will seek this year and the amount they actually bagged last year should serve as a reality check. Many of this year's solicitors will never raise a dime. That said, more institutions than ever want to invest in private-equity funds. In the VC world, the top firms have been raising smaller funds, creating fewer investment opportunities to go around. If investors couldn't get a big enough chunk of the down-sized funds at Kleiner Perkins or Sequoia Capital, will they allot more money to second-tier funds or take a flyer on new money managers? Of the 508 funds currently in the market, 153 are first-time funds raised by newly founded private-equity firms, PEI says. The researcher estimates an additional 300 funds from established firms could come to market by year's end. Pay attention to which VC firms succeed at raising money this year. It will influence the quality and supply of companies that go public in 2010.

09:57 PM

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