We just received Dow Jones VC Edge report for Q2 2019. The data is excellent and shows the trends in venture capital. Below is a breakdown of fundraising of new venture funds. The data on an LTM basis (‘last twelve months’) and observations are below.
Venture is still hot. Q2 marked the third consecutive quarter in which fundraising for new VC was greater than $50bln on an LTM basis. From Q2 2015 to Q3 2018, total capital raised for new VC funds averaged $42mm with a range of $39mm to $45mm. From Q4 2018 to Q2 2019 however, the average has been $59m with a range of $56mm to $63mm. Fund flows into venture continue to be very strong. Andreesen’s new “LSV” fund led the way with $2.2bln raised. Andreesen’s Fund VI came in second place with $824mm raised.
Total new funds are unchanged. In the past 12 months, 592 new funds have come to market, up only 10% year over year whereas capital raised is up 39% year over year. Note that significant YOY growth in new funds hasn’t occurred since Q3 2017, when 549 new funds came to market on an LTM basis representing 19% YOY growth. Since that time, YOY growth has averaged only 6% with a low of -1% and max of 11%.
Fund size is up. As a result of high cash inflows into venture but a muted increase in the total number of new funds, overall fund size is now $99mm on average representing a 26% YOY increase on an LTM basis. That’s the third straight quarter of significant year over year growth in fund size. Note that average fund size was actually shrinking year over year until Q2 2018. Plenty of cash is flowing into later stage funds, while less cash is flowing into seed stage and earlier stage funds.
A lot of venture money isn’t from venture. Over the past 20 quarters, $224bln of new venture capital was raised. Over those same quarters $448bln was invested into venture backed companies. While money raised isn’t necessarily deployed in the same year (it usually takes a few years), one would expect those figures to be somewhat close especially over such a long time period. If only 50% of capital in venture backed companies is coming from venture capital firms, where is the other 50% coming from? Family offices, hedge funds, strategics, and large financial institutions like Fidelity and T. Rowe Price. Venture investing is no longer solely the purvey of venture funds.
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