Insights from the U.S. Venture Capital Fundraising Market in 2015

*The following article is from Sapphire Ventures.

 

At Sapphire Ventures, we make a habit of analyzing the U.S. venture capital fundraising market to inform our investment perspective as a limited partner (LP) in early-stage VC funds. Some of this review informs our prediction pieces, such as my colleague Elizabeth“Beezer”Clarkson recent article Reading The Venture Tea Leaves For 2016.

Looking back at 2015, data provided by the National Venture Capital Association (NVCA) and Thomson Reuters offers some interesting insights, including the clear slowdown in fundraising over the last few quarters, the relatively low amount of commitments to first-time funds and the rather large amount of commitments to relatively few managers. Following are a few tidbits from our review of the data.

1. Commitments to venture capital were down quite significantly in the second half of 2015.

In 2015, LPs committed nearly $27 billion to 234 funds. Towards the end of the year, the pace of funds holding closes slowed both in terms of dollars raised and number of funds raised. This drop in commitments could indicate a shift in LP sentiment in the market as macro pressures continue to loom, or it could just be a matter of timing of fund cycles. In general, it seems like most LPs are fine waiting on the sidelines to see how the macro plays out for at least one quarter before committing to new funds in 2016.

Source: NVCA

2. Both first-time and follow-on funds were affected by this slowdown of commitments.

Moreover, the slowdown in number of funds closing is clear for both first-time and follow-on funds. There were 49 first-time funds that closed in the first half of 2015, but this number dropped to 33 first-time funds closing during the second half of the year. The number of follow-on funds also decreased from 86 in the first half of the year to 66 in the second half.

Further, the absolute number of dollars committed to first-time and follow-on funds dropped rather significantly, as seen in the chart below. Average fund size also dropped towards the end of the year, particularly in follow-on funds, which had average fund size drop from $179 million to $124 million from the first to second half of the year.

Source: NVCA

3. While 82 first-time funds were able to raise capital, the total amount of dollars committed to these new funds was relatively small.

The 82 first-time funds that were raised accounted for approximately 35 percent of all funds that closed in the year by number; although they comprised only 12 percent of the total dollar commitments by LPs. On the other hand, there were 152 follow-on funds that closed, equaling 65 percent of the total number of funds and comprising 88 percent of the total dollar commitment.

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