Venture capital fundraising slowed in the first quarter of 2004, with 32 funds raising $2.3 billion, down from $5.4 billion raised by 50 funds in the previous quarter. Eleven balanced stage funds raised $919 million while 18 early stage funds raised $884 million. Later stage funds raised $309 million from 3 funds. California-based funds raised nearly half of all commitments for the quarter at $995 million from 14 funds. The ratio of follow-on funds to new funds widened to more than 3 to 1, with the largest fund being a $400 million follow-on by Essex Woodlands.

1. Jeanne Metzger, NVCA, 703-524-2549 ext. 116, jmetzger@nvca.org
Joshua Radler, Thomson Venture Economics, 212-806-3146, Joshua.radler@thomson.com
Venture Capital Fundraising Momentum Slowed in First Quarter
32 Funds Raised $2.3 Billion
May 3, 2004 – New York, NY - After an active fourth quarter of 2003, venture capital
fundraising in the first quarter of 2004 returned to the relatively lower levels seen during the
first three quarters of 2003, according to Thomson Venture Economics and the National
Venture Capital Association. In the first quarter, 32 funds closed on $2.3 billion, a decline
from the previous quarter’s $5.4 billion garnered by 50 funds but similar to levels seen in the
third quarter of 2003.
Venture Capital Buyout & Mezzanine
Year/Quarter
# of Venture # of Buyout/
Funds Capital Funds Mezzanine
($ Millions) ($ Millions)
632 105,289.3 158 76,347.5
2000
303 37,722.3 116 44,533.0
2001
161 9,196.6 83 26,496.1
2002
124 11,128.3 84 29,707.6
2003
32 2,304.7 18 2,371.7
2004
34 1,116.2 28 4,372.0
1Q'03
39 2,626.7 27 4,863.4
2Q'03
31 1,980.2 26 5,248.1
3Q'03
50 5,405.2 28 15,224.1
4Q'03
32 2,304.7 18 2,371.7
1Q'04
Source: Thomson Venture Economics & National Venture Capital Association
*The figures above do not take into account downsized funds
“We expect the next 18 months to be a relatively active time for venture firms raising money.
There are several firms in the process of fundraising and we anticipate seeing an increase in
closings later in the year. That said, the average size of the funds will be much smaller than
we saw a few years ago as firms are being disciplined in projecting what they will need to
continue to generate strong returns for their investors,” commented Mark Heesen, President
of the National Venture Capital Association.

2. There was no dominant stage preference among the funds raised in Q1 2004. Eleven
Balanced stage funds raised $919 million, while early stage funds raised $884 million among
18 vehicles. DeNovo Ventures II, which closed on $250 million in commitments, was the
largest early stage fund and the quarter’s second largest fund overall. Another early stage
fund, Alta Partners’ ACP IV, raised $180 million. Later stage funds were a distant third with
3 funds raising $309 million.
Fundraising by geography followed traditional trends. California-based funds outpaced other
regions, closing 14 investment vehicles raising $995 million, nearly half of all commitments
for the quarter. Two Illinois funds raised $573 million. Six Massachusetts based funds raised
$287 million.
New Venture Capital Funds vs Follow-on Funds
No. of New No. of Follow-on
200 103
2001
53 108
2002
44 80
2003
7 25
2004
Source: Thomson Venture Economics &
National Venture Capital Association
During the first quarter, the gap widened between the number of new vs. follow-on funds
raised. In the previous eight quarters the ratio averaged out to approximately 2 follow-on
funds to 1 new fund. In the first quarter, however, the ratio expanded to more than 3:1 in
favor of follow-on funds. The largest fund raised during the quarter was a follow-on by Essex
Woodlands. Their Health Ventures VI fund raised $400 million. Other top-tier firms also
raised follow-on funds in the quarter including Alta Partner’s Biopharma Partners III with
$227 million and their previously mentioned ACP IV. Kleiner Perkins XI raised $182
million, and NEA 11 added $105 million bringing its total size to $1.1 billion raised to date.
The seven new funds raised in the first quarter accounted for only $46.6 million of the
quarter’s total commitments.
Commenting on the significance of these fundraising figures, Jesse Reyes, Vice President at
Thomson Venture Economics said, quot;Fundraising continues to be challenging in spite of the
ostensible recovery that the industry is going through. There have always been cycles of
leverage in this business and right now for all but the best funds, LPs have the upper hand in
leverage as fundraising is stretching out for many funds that are not in the top 25 firms.
However, LPs are also challenged in that fund sizes for the most part are smaller than in prior
fundraising cycles, which means that either LPs will have to take a smaller piece of the pie in
a follow on fund or may be crowded out altogether. This is both boon and bane for first time
funds -- those that spin out of other successful partnerships will have a better chance of
raising funds than those that are started by individuals with little or nor prior experience.quot;
The buyouts and mezzanine sector witnessed a precipitous decline from the fourth quarter.
Eighteen such funds raised $2.4 billion, as opposed to $15.2 billion for 28 funds in the
previous quarter. Only five of the 18 funds raised more than $200 million during the quarter

3. including Summit Subordinated Debt Fund III, which raised $465 million. First Reserve
capped its Fund X in March at $2.24 billion, raising an additional $279 million, well over its
$1.5 billion target.
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importance of venture capital to the vitality of the U.S. and global economies, to stimulate
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