Jeanne Metzger, NVCA, 703-524-2549 ext. 116, firstname.lastname@example.org
Jesse Reyes, Venture Economics, 973-645-9734, email@example.com
VENTURE CAPITAL COMMITMENTS “RIGHTSIZING”
More Money Returned Than Raised in Q2 2002
August 5, 2002 – Newark, NJ - In the second quarter of 2002, the venture capital industry showed signs of
positive restructuring as large firms began to downsize their funds in order to respond to the new economic
realities. At the same time, the majority of new funds raised in Q2 2002 will focus on early stage
investments, sending entrepreneurial companies a positive sign regarding their future abilities to obtain
In an unprecedented trend, venture capital funds returned more money to their limited partners (LPs) than
they raised in new funds in the second quarter of 2002. Recognizing that it was unlikely that venture firms
could effectively invest billion dollar funds in the current uncertain and volatile environment and reap the
stellar results that investors expect, 7 firms returned $2.7 billion to LPs. Ostensibly, this generates goodwill
with LPs to help future follow-on fundraising efforts. This downsizing also relieves some of the
contentious fee burden placed on LPs on uninvested capital which is at nearly 200 billion for venture and
buyouts collectively and decreases the cost basis for the tremendous fund raising efforts in 1999 and 2000.
Nevertheless, 30 funds did raise $1.8 billion in Q2 2002, which is a slight increase from the $1.7 billion
raised in the first quarter of this year.
When the amount returned to LPs is factored into the fundraising totals, committed capital was a negative
$887 million. The firms who have reduced their fund size have all been veteran firms, including Accel
Partners, Austin Ventures, Charles River Ventures, Walden International, among others. This trend is a
sure sign that LPs and venture firms alike are carefully allocating their capital assets for future investments.
The 30 funds raised in the second quarter represents a 31% decrease compared to the 44 funds raised last
quarter. The increase from $1.7 billion to $1.8 billion in commitments is not remarkable, but it does
illustrate the trend of fewer funds with smaller amounts of committed capital, bringing the amount of funds
and their sizes to an equilibrium with the amount of venture investing taking place in the current market.
Mark Heesen, president of the National Venture Capital Association commented, “The continued slow pace
of venture capital fundraising is expected and probably will continue for some time because most venture
funds still have ample resources to support their investment strategies for next 12-18 months. Limited
partners continue to be interested in venture capital knowing like any other asset class it runs in a business
Venture Capital Buyout & Mezzanine Fund of Funds
Year/Quarter # of Venture # of Buyout/ # of Fund of
Funds Capital Funds Mezzanine Funds Funds
($ Billions) ($ Billions) ($ Billions)
288 31.1 180 70.5 39 10.9
431 60.5 169 67.6 59 13.5
635 107.7 169 85.0 61 14.7
127 17.3 49 15.9 26 5.4
92 11.2 32 11.0 22 2.5
67 7.1 43 15.9 11 2.7
94 5.7 51 14.8 20 3.2
44 1.7 14 5.8 10 1.9
30 1.8 17 6.2 5 0.6
*Quarterly number of funds will not equal annual number of funds because a fund raises money across
On a positive note, 28% of the total $1.8 billion came from first time funds, which is a slight increase from
the previous quarter when first time funds represented approximately 18% of the total amount raised in the
quarter. Another optimistic factor is that the majority of the funds raised this quarter focused on early and
seed stage investments, instead of later stages, giving newly starting companies a place to find venture
capital for their businesses.
New Venture Capital Funds
Quarter No. of Funds Amount Raised ($bil) % of Total Amount Raised
Q1'00 48 3.3 14.1
Q2'00 68 3.6 13.8
Q3'00 46 3.7 13.1
Q4'00 70 6.0 27.7
Q1'01 42 1.8 13.9
Q2'01 27 .9 8.1
Q3'01 17 .5 6.9
Q4'01 37 2.1 36.8
Q1'02 12 .3 17.6
Q2'02 11 .5 27.8
New Venture Capital Funds vs Follow-on Funds
No. of New No. of Follow-on
There was a geographic diversification in fundraising activity in Q2 2002 compared to previous quarters.
The Greater New York area raised the most funds this quarter, even though the amount those five funds
raised was only half the amount that was raised in this same region last quarter. Indicating that many
venture firms are looking at a wider variety of industry sectors that are not reliant on what occurs in Silicon
Valley, funds continue to be raised throughout the United States. Just as many funds were raised in the Mid
Atlantic, Ohio Valley, and the Northwest as were raised in Silicon Valley.
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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.