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  • 1. Record Amounts of Uninvested Capital Result in Lower Fundraising by Venture Capitalists Venture capital funds secured $4.6 billion of commitments during the fourth quarter of 2001, as fund raising activity continued to slow, according to Venture Economics and the National Venture Capital Association. However, during all of 2001, 286 venture funds raised $40.6 billion, representing the third-largest year on record. The slowdown reflects strong reserves resulting from increased fundraising levels in 2000 and early 2001 (see chart below). With investing activity having slowed from the pace of 2000, venture capitalists are able to draw from existing funds without a need to raise additional capital. "Now that the investment pace has slowed, venture capitalists have adjusted their time horizon for deploying committed capital. A multi-year time frame to fully deploy a venture capital fund is in sync with historical norms," stated Mark Heesen, President of the National Venture Capital Association. Venture Capital Buyout & Mezzanine Fund of Funds Other * Year/ # of Venture # of Buyout/ # of Fund of # of Other Quarter Funds Capital Funds Mezzanine Funds Funds Funds ($ ($ ($ Billions) ($ Billions) Billions)** Billions) 1991 42 1.6 28 3.8 2 0.06 3 1.1 1992 74 5.0 63 11.9 1 0.02 5 1.3 1993 92 3.7 83 17.9 3 0.2 6 1.7 1994 138 7.8 103 20.9 1 0.04 10 3.5 1995 155 9.9 105 26.6 2 0.2 13 4.4 1996 163 12.1 112 33.7 3 0.3 19 5.1 1997 232 17.7 140 49.8 6 1.0 15 8.9 1998 277 30.4 166 64.1 5 0.8 25 8.3 1999 424 59.2 157 64.5 15 2.3 20 11.2 1Q'00 165 21.8 42 12.6 7 1.2 1 0.2 2Q'00 183 30.8 50 32.0 3 0.4 2 0.9 3Q'00 129 28.6 38 12.1 8 0.7 2 1.7 4Q'00 186 23.4 48 23.0 8 1.2 2 1.5 Total 605 104.6 155 79.8 25 3.3 7 4.3 2000 1Q'01 114 17.4 44 12.3 15 2.8 3 3.2 2Q'01 86 11.7 30 10.6 12 0.7 1 0.8
  • 2. 3Q'01 59 6.9 28 5.7 4 0.9 4 4.6 4Q'01 58 4.6 20 11.7 8 1.9 2 1.7 Total 286 40.6 102 40.5 29 6.3 9 10.3 2001 Source: Venture Economics & National Venture Capital Association * These totals reflect the inclusion of Energy, Timber, Real Estate and Other Private Equity/Special Situation Funds. ** Corporate VC commitments are not included, as corporate VCs generally don't raise money in the open market Of the $40.6 billion raised in 2001, just $4.6 billion, or 11% of the total, was committed to first-time funds. This is slightly below 2000 when 13.3% of the money went to new firms. "Like the technology companies that VCs invested in, which now have a lot of unsold inventory, the private equity industry as a whole has a substantial inventory of approximately $100 billion of uninvested capital. So it is not surprising that the appetite for increased LP commitments in this asset class has been sated," says Jesse Reyes, vice president, Venture Economics. "The absence of an exit market also means that distributions back to LPs has slowed. LPs were able to finance a good portion of their additional commitments through the distributions from prior investments, thus creating a 'self funded' commitment market. We expect that until the excess capital is drawn down and distributions pick up, it will be difficult to increase commitments much above last year's levels." Year Venture Capital Raised Invested ($Billions) ($Billions) 1991 1.6 2.3 1992 5.0 3.8 1993 3.7 4.6 1994 7.8 3.8 1995 9.9 5.1 1996 12.1 9.6 1997 17.7 14.4 1998 30.4 19.2 1999 59.2 52.4 2000 104.6 99.6 2001 40.6 36.5 Total 292.6 251.3
  • 3. Source: Venture Economics & National Venture Capital Association Early and seed stage venture funds continued to dominate fund raising activity in Q4 2001, as $2.4 billion-more than half the total amount of capital raised in the quarter- went toward funds with an early or seed stage focus. For the year, early and seed stage funds received $24.3 billion, down 58% from the $58 billion raised in 2000. Balanced stage funds received the second-largest amount of capital for the year, as 83 funds brought in $11.4 billion, compared with 196 balanced stage funds raising $33.8 billion in 2000. First-Time Venture Capital Funds Year # of Amount Raised % of Total Amount Raised That Funds ($mil) Year 1991 5 166.4 10.4 1992 13 1,792.0 35.8 1993 18 576.2 15.6 1994 25 875.7 11.2 1995 36 2,484.9 25.1 1996 54 3,035.2 25.1 1997 79 4,108.9 23.2 1998 82 4,314.2 14.2 1999 146 14,395.5 24.2 2000 195 13,934.6 13.3 2001 86 4,632.6 11.4 Source: Venture Economics & National Venture Capital Association Once again, the majority of funds and capital in Q4 2001 came from Northern California. The region raised 22 funds, 54% of the total amount raised, totaling $2.5 billion. New England raised the quarter's second-largest sum with $769.8 million coming from 10 funds. For the year, Northern California raised the largest amount of funds and capital, with 77 funds totaling $12.3 billion. New England raised 29 fewer funds than Northern California but had an average fund size of $219 million compared to the latter region's $160 million. Venture Capital Raised by State Region for 2000 & 2001 2000 2001 Amount Raised Amount Raised State Region # of Funds # of Funds ($Billions) ($Billions)
  • 4. N. California 191 44.1 77 12.3 New England 66 13.9 48 10.5 Greater New York 110 18.7 58 8.8 Southwest 31 4.2 19 2.4 Ohio Valley 31 3.5 10 1.4 Mid-Atlantic 38 7.0 14 1.3 Great Lakes 23 1.6 19 0.9 Northwest 16 1.3 5 0.9 S. California 27 3.7 10 0.8 Rocky Mountains 13 1.0 10 0.8 Great Plains 17 2.8 7 0.2 Southeast 34 2.4 8 0.2 South 8 0.4 1 0.03 For the year, six funds raised $1 billion or more, compared with 21 in 2000. That helps to explain why the average venture capital fund size in 2001 was $141.8 million, compared with $173.1 million in the previous year. Vintage Vintage Vintage Yr Yr Yr 1999 2000 2001 Buyout/Mezzanine Average Size $410.8M $513.3M $397.1M Venture Capital Average Size $139.5M $173.1M $141.8M Source: Venture Economics & National Venture Capital Association Meanwhile, leverage buyout and mezzanine firms secured $11.7 billion through 20 funds during the fourth quarter, an increase from the third quarter, when 28 funds raised $5.7 billion. The Blackstone Group, which held a first close of $4 billion, raised the quarter's largest fund. For the year, mezzanine and buyout firms raised $40.5 billion through 102 funds, a decrease from a year ago, when 155 funds brought in $$79.8 billion. Of that $40.5 billion, just 9% came from first-time funds, representing the lowest percentage of the past decade but not a significant drop from 2000, when 11% of the capital collected came from debut funds. There were nine billion-dollar buyout and mezzanine funds raised this year, down from a record total of 27 in 2000 and the lowest amount since 11 were raised in 1997.
  • 5. Number of Billion-Dollar Funds by Vintage Year Year Venture Capital Buyout and Mezzanine 1996 0 4 1997 0 11 1998 1 14 1999 8 20 2000 21 27 2001 6 9 Source: Venture Economics & National Venture Capital Association First-Time Buyout & Mezzanine Funds Year No. of Amount % of Total Funds Raised Amount ($mil) Raised That Year 1991 10 1,128.0 20 1992 18 2,897.1 24 1993 18 2,710.0 15 1994 31 5,303.3 25 1995 32 4,805.9 18 1996 38 6,385.1 19 1997 39 5,129.3 10 1998 42 8,923.3 12 1999 44 8,923.3 14 2000 37 8,667.7 11 2001 21 3,521.0 9 Source: Venture Economics & National Venture Capital Association About Venture Economics Venture Economics, a Thomson Financial company, is the foremost information
  • 6. provider for equity professionals worldwide. Venture Economics offers an unparalleled range of products from directories to conferences, journals, newsletters, research reports, and the Venture Expert(TM) database. For over 40 years, Venture Economics has been tracking the venture capital and buyouts industry. Since 1961, it has been a recognized source for comprehensive analysis of investment activity and performance of the private equity industry. Venture Economics maintains long- standing relationships within the private equity investment community, in-depth industry knowledge, and proprietary research techniques. Private equity managers and institutional investors alike consider Venture Economics information to be the industry standard. For more information about Venture Economics, please visit http://www.ventureeconomics.com. About National Venture Capital Association The National Venture Capital Association (NVCA) represents over 450 venture capital and private equity organizations. NVCA's mission is to foster the understanding of the importance of venture capital to the vitality of the U.S. and global economies, to stimulate the flow of equity capital to emerging growth companies by representing the public policy interests of the venture capital and private equity communities at all levels of government, to maintain high professional standards, facilitate networking opportunities and to provide research data and professional development for its members.

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