Venture capital funds raised $4.1B in Q3 (report)

Venture capital funds raised $4.1 billion during the third quarter of 2013.

The National Venture Capital Association (NVCA) came out with its quarterly report today, which found that by number of funds, the third quarter ranks as the strongest quarter for venture capital fundraising in the past twelve months.

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56 funds raised the $4.1 billion, which is up 28 percent in dollar amounts and 14 percent in number of funds, as compared to the second quarter of 2013. However both numbers are down from the third quarter in 2012, when 60 funds raised $5.2 billion.

“The slightly larger number of firms raising money in Q3 is an indication that there’s some improvement in distributions and prospects. The gradually improving IPO market, along with better quality exits on the M&A side, are signaling to limited partners that venture funds can still yield attractive returns,” said John Taylor, NVCA head of research, in a statement. “Smaller fund sizes are not surprising as venture capitalists are looking to invest in less capital intensive sectors and are focused on deploying capital more efficiently.”

Of the 56 funds, 40 were follow-on funds and 16 were new. The top five venture capital funds accounted for 58 percent of total dollars raised. Follow-on funds raised 89 percent of the total dollar commitments from the most recent quarter

Greylock was the fundraising leader for Q3 with its new $1 billion fund. It is the first U.S. VC fund to raise over $1 billion this year. Sequoia ranked second with its $552.9 million Fund XIV.

The largest new fund was Drive Capital Fund, an Ohio-based firm that raised $181 million in its inaugural fund.

Analysts predicted that 2013 would be a stronger year for venture capital investments than 2012, when activity declined to its lowest levels since 2009.

Ernst and Young said that “steadying” economic conditions would bolster investor confidence and increase risk appetite, along with the prosper of better exit opportunities. The number of VC-backed IPOs and M&A exists was down in 2012, and the uncertainty about the market led to consolidation, with only the “stronger players” continuing to actively invest.

A recent study by Deloitte and the NVCA found that investor confidence in the U.S. has grown over the past year, while enthusiasm for companies in emerging markets is fading. Mobile and cloud computing SaaS remain two of the areas with the highest levels of optimism.

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