Venture Capital Funds in the United States, raised a whopping $40.6 billion in 2016. It was the largest year for VC fundraising since 2000 when the venture industry raked in a jaw dropping $101.4 billion.
Less money overall will be raised by venture funds this year than in 2016
Ok, I admit this one is a bit of a gimme given the $40.6 billion of capital raised in the United States combined with the big league names that closed new “mega” funds (funds of over $500 million) in 2016 – 24 in total, including Accel, Andreessen Horowitz, Battery Ventures, Founders Fund, General Catalyst, Greylock, Kleiner Perkins Caufied & Byers, Lightspeed Venture Partners, Norwest, Sapphire Ventures, Spark Capital, TCV, Thrive Capital, and the list goes on.
A number of notable VC names did not raise in 2016 and could raise 2017 (e.g., Benchmark, CRV, NEA and Sequoia among others). Notwithstanding this it’s hard to see how this year could repeat the total volume of dollars raised in 2016. There simply aren’t enough established brand names still on deck to raise large funds and it is very hard for first time funds to raise a mega fund.
Some investors think 2017 could harken back to the old days when the industry raised as little as $15 billion. For those keeping track we haven’t seen a figure like that since 2009 and 2010 when $16 billion and $13 billion were raised respectively.
Fundraising will still be a game of haves and have-nots
And the haves in 2016 will be those VCs that have had realized exits. Given last year’s tepid exit market and the rise of down to flat rounds in the private market, LPs will be watching the public stock markets this year with great interest. LPs will increasingly insist on realized returns (aka exits) to differentiate between the haves and have nots. Raising funds based on unrealized returns was fairly commonplace in 2016. This might not be sufficient going forward in 2017 and even tougher for funds coming back in 2018.
More first-time funds will be raised
2016 hit an historic low, with only 42 first-time funds that closed, compared to 94 in 2015. Fundraising can also take a while; especially for newer managers it can take anywhere from 12 to 24+ months before a close. All signs point to a backlog.
Thus, I expect the number of first-time funds to go up in 2017 as managers who started raising in 2016, and a handful of those beginning to raise this year, will close their funds in the next 12 months. That said, I don’t anticipate 2017 to return to the halcyon days of 2014 when 120 first-time funds were raised. There is a notable noise to signal challenge for LPs given the hundreds of microfunds raised over the past few years coupled with LPs’ desire to see how the fund managers they have backed in the past few years mature before adding new funds to their respective portfolios.
REO Capital, works on First Time VC funds and established VC funds. Give us a call and lets talk about your next VC fund.