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Watching Venture Funds

Economics is supply and demand. One of the key ways to keep a handle on the climate for startup funding is to watch how successful the venture firms themselves are at raising money.
Once these funds are raised, it’s often a point of pride that the GP’s invest all the money - returning funds to the LP’s typically amounts to a failure. And once those funds are committed, it’s money that should be put to work earning returns as soon as is possible.

So we watch funds and fundraising. Private Equity Week has a piece by Dan Primack that gives a view into the current state. Contrary to all the doom and gloom, firms are seeing great success in opening new funds.

When New Enterprise Associates launched its 11th fund-raising drive last summer, many prospective investors snickered at the $1 billion target. Some remarked that the proposed size reeked of bubble-era hubris, and that NEA had vastly overestimated its own reputation.
The firm held a $994.6 million first close in early December, and is expecting to bust its target by securing a few additional commitments this month. It is the largest VC fund-raising coup of 2003, and ultimately should be the first $1 billion fund raised by a VC-only shop since a handful of firms did the deed in 2001.
More important than the numbers, however, are what they mean to the VC fund-raising market as a whole. This is an arena that has been stagnant for years, and only occasionally brightened by the promise of a massive influx of new offering memorandums from veteran firms….
“It was interesting because even though LPs were very receptive to the fund, there was still more due diligence than ever before,” says Klausner, who adds that many of the questions revolved partnership stability. “There were a reasonable number of questions about the team and making sure that all of us were fully on board.”

Hopefully, activity like this will renew confidence among the venture community and increase liquidity available to promising startups.