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New Venture Capital Investment Nearly Comes to a Halt

Posted by: Spencer Ante on April 13, 2009

It’s official: Institutional investors have put the kibosh on investing in new venture capital funds, though established firms with track records have been able to scare up some money. That’s the big news out of today’s announcement about fund raising trends in the first quarter of 2009 from Thomson Reuters and the National Venture Capital Association.

In the quarter, 40 venture capital funds raised $4.3 billion, down 40% from the first quarter of 2008 when 71 funds raised $7.1 billion. It was the smallest number of venture funds to raise money since the third quarter of 2003. The biggest shocker? Of those 40 funds, only 3 of them were new funds; the other 37 were raised by existing venture firms.

The news reinforces recent reports that big investors such as university endowments, pension funds and fund of funds are pulling back from venture capital as an asset class. Such investors are reluctant to finance new funds because venture returns have been poor lately and because their investments in public equities have seen sharp drop-offs.

“There’s pressure on the newer funds,” says David Pakman, a partner with Venrock, an established New York-based venture fund originally started by the Rockefeller family. “It’s not a great time to be investing if you are a new fund. It’s not because they are bad. It’s because their track record is not as long. ” Venrock is making investments out of $600 million fund it closed in March of 2007.

Of the funds raised in the first quarter, the two biggest were raised by older firms, August Capital and Bain Capital Venture Fund. In March, August raised a $650 million fund, the largest of the quarter. It is the 14-year-old firm’s fifth fund. In February, Bain, a 25-year-old Boston-based firm, raised a $475 million fund.

- Spencer Ante also publishes the Creative Capital blog. Click here to see more.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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