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Alternative Market Briefing

Venture capital fundraising see a steep drop-off in fund closures in Q4, 2019

Tuesday, February 25, 2020

Laxman Pai, Opalesque Asia:

Venture capital fundraising is typically strongest in the final quarter, but in 2019, an unexpectedly sluggish Q4 dampened the annual total.

According to a Preqin report, at the end of Q3 2019, full-year fundraising by US-based venture capital funds looked set to overtake the previous year.

Momentum stalled in Q4, though, and the total amount of capital raised in 2019 ($50bn) ended up level with 2018, said the report by Preqin and First Republic Update.

What's more, this followed a significant jump of 39% in capital secured from 2017 to 2018. While total capital was virtually unchanged from the previous year, nearly 100 fewer funds closed in 2019 (415 funds vs. 508 in 2018).

To put Q4 activity into context, almost half as many funds closed in comparison with Q4 in 2018 (91 vs. 180 funds respectively).

Although the pace of overall fundraising slowed, veteran managers continued to attract capital, securing $11bn of the $50bn total. Six mega ($1bn+) USbased venture capital funds closed in 2019, the same number as in 2018, and all were raised by experienced managers.

As with the market overall, this follows a significant uptick in megafund activity between 2017 (three $1bn+ funds raised $6.9bn) and 2018 (six funds secured $11bn).

Despite an overall decline in US venture capital activity, the average time spent in the market by funds closed dropped to its lowest point since 2014.

Funds closed in 2019 spent an average of 14.5 months raising capital, down from 16.5 months for funds that reached a final close in 2018. US-based venture capital funds raised an average of 103% of their target capital.

Although venture fundraising was on a smaller scale last year, it was still successful.

For the most part, funds closed in 2019 were investing across a similar spread of deal stages as in years past.

Vehicles focused on expansion-stage financings were again the least common, with only four such funds closing in Q4 2019.

Most investments went toward early-stage funds, which brought in an average of 108% of their target and a total of $22bn; that said, they also spent the longest average time in the market at 17 months.

As in past years, US venture capital funds primarily invested their capital domestically, with 90% of aggregate capital earmarked for opportunities in the US.

Most funds with a geographic focus outside the US are vehicles set up by established managers to target a specific country or region. For example, Accel has individual funds dedicated to Europe and India in addition to its flagship US funds.

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