Deal Flow

Inside the world of M&A, IPOs, and Venture Capital

Justin Hibbard
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January 31, 2005

Even Mo' Money

Justin Hibbard

As if we needed more confirmation that VCs are raising tons of money, this morning we got...more confirmation that VCs are raising tons of money. The 2004 fundraising numbers are in from Thomson Venture Economics and the National Venture Capital Association, and they show a big surge. Last year, U.S. VCs raised 170 funds worth a total of $17.6 billion. That's a 67% increase from 2003 and $3.4 billion more than VCs raised in the previous two years combined. The N.V.C.A. expects quarterly fundraising levels to keep growing in the first half of this year.

As we've said before, the current fundraising rush raises questions about whether too much money is pouring into the VC industry and whether an oversupply of capital will drive up private companies' valuations and depress VCs' returns. Given the current amount of funds committed, money placed in a new VC fund today is a bet that valuations of VC-backed companies -- and demand from IPO investors and acquirers -- will stay strong or get stronger over the next five to ten years. Though IPOs and acquisitions have bounced back since the drought of 2002, investors and acquirers are still selective. Their appetite may not be enough to provide satisfactory returns to many of the funds VCs are currently raising. (Then again, we may change our tune if goes public.)

01:48 PM

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