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US VC fundraising tops $17.6bn in 2004

Venture capitalists last year raised 170 funds totalling $17.6bn, $3.4bn more than the previous two years combined, while buyout and mezzanine funds attracted $45.8bn in 103 funds.

Venture capital fundraising experienced a boon in 2004, with commitments reaching $17.6 billion (€13.5 billion), or $3.4 billion (€2.6 billion) more than the previous two years combined, according to Thomson Venture Economics and the National Venture Capital Association.

Buyout and mezzanine funds also had a large boost in 2004, with 103 funds attracting $45.8 billion (€35.1 billion), slightly less than the $56.2 billion (€43.1 billion) reported in the previous two years combined.

Venture commitments in 2004 are a 66.7% increase over 2003, when 135 funds raised $10.58 billion. Though the 2004 number is nowhere near the more than $106 billion raised at the peak of the tech bubble back in 2000, the increase is already bringing into question whether too much available money will threaten the investment environment.

In the press release, NVCA president Mark Heesen said that though increases in venture capital commitments are expected in continue in the first half of 2005, “as an asset class, we should be looking for an eventual leveling off this year so that we do not raise more money than the industry can support.”

He added: “Thankfully, most firms are continuing to raise smaller funds and are staying within their original targets, despite temptation to take more.”

The largest venture-dedicated fund of the year was the $1.5 billion eleventh fund raised by Oak Investment Partners, a Connecticut-based firm that has a balanced approach to VC investing, which includes a focus more on late-stage and mature investment opportunities. Meanwhile, Interwest Partners and US Venture Partners, both based in Menlo Park, California, each closed a ninth $600 million early-stage fund.

Virginia-based New Enterprise Associates started off the year with a bang with it officially announced the close of its own $1.1 billion eleventh fund in February. However, according to a previous article that appeared on PrivateEquityOnline.com, NEA’s fundraising was more or less complete by December 2003, though it was announced two month later, and as such, was not include in the final tally of funds raised during 2004.

In 2004, 101 early- and seed-funds raised $9.2 billion and 49 balanced vehicles attracted $6.2 billion. These figures represent 52.4% and 35.3% of the year’s total, respectively.  According to the release, follow-on funds remained predominant in 2004, accounting for 73.5% of all venture funds raised. The number of new funds raised last year totaled 45, the exact same as in 2003.

During 2004, the venture capital industry also posted high numbers for capital deployment. According to the MoneyTree Survey by PricewaterhouseCoopers, Thomson and the NVCA, venture capitalists invested $21 billion into emerging companies.

As for buyout-, mezzanine-, turnaround- and recapitalisation-focused funds, last year’s $45.8 billion figure represents an almost 55 percent increase over 2003’s $29.6 billion raised. According to the release, a major factor in the increase was the success firms experienced in raising mega funds – 11 funds raised $1 billion or more for a total commitment of $25.8 billion. Among these, two mega funds were raised in the fourth quarter. American Securities Partners IV attracted $1 billion in the quarter, while Carlyle Partners IV took in $4.9 billion. The Carlyle fund was the largest raised in 2004.