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US venture fundraising slumps more than 80 per cent in 2002

US venture capital fundraising remains in crisis as the amount raised in 2002 fell by 83 per cent on 2001 figures, according to new figures released by Thomson Venture Economics and the National Venture Capital Association.

Just 108 US venture funds raised $6.9bn last year, compared to 331 venture funds in 2001, which raised $40.7bn. The fourth quarter was particularly barren for venture firms as 31 venture firms struggled to obtain$1.2bn.

Further evidence of the continued decline of the venture capital industry in the US made itself felt in the number of funds reducing their fund size. Some 26 US venture capital firms announced the downsizing of their funds in 2002, with $5bn handed back to investors.

‘There are several factors that are constraining commitments to venture capital funds,' said Thomson Venture Economics and the NVCA in a statement. ‘Chief among them are the recent phenomenon of large funds returning previously committed capital back to their limited partners; the inordinately large overhang of previously committed capital that has yet to be invested; a lengthening of the fundraising process; lower private company valuations and a shift in industry sectors and investment opportunities that correspond to emerging national priorities.'

Despite some mutterings of a venture capital bubble in the life sciences sector, MPM Capital Bioventures III was the largest fund to close in 2002 with $900m.

As macro-economic and political conditions continue to decline, there is little hope of a rapid recovery for the beleaguered US venture capital industry. Players are beginning to express grave concerns going forward should investors lose interest completely in committing money to a sector that is increasingly seen as too risky.

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