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Over the past year, we’ve written a lot about the rise of supergiant venture capital funds. Since the launch of the $ 100 billion SoftBank Vision Fund, established VCs have been outperforming each other to raise ever greater funds.
But let’s not write the epitaph in smaller funds. The US venture fundraising data for 2019 reveals a large number of smaller, more targeted funds that are closed on equity. Newcomers are launching new early-stage funds, and even established VCs are choosing in many cases to keep the fund size constant or even slightly smaller.
The influx of small and medium funds serves as a reminder that supergiant funds are somewhat of an aberration to the venture capital industry. While VCs compete to support massively scalable startups, the common wisdom is that the venture capital industry itself doesn’t scale up especially well. Adding more capital to the pot is thought to be more likely to inflate valuations than to encourage big companies.
Silicon Valley stalwart Kleiner Perkins is one of the last to jump on the smaller is better bandwagon. Three weeks ago, the 47-year-old firm closed $ 600 million for its eighteenth flagship fund, touting a plan to “go back to the future” and focus on the early stage with the philosophy that “the company is a non-scalable company.” craft boutique “.
Of course, $ 600 million is by no means a small fund. And Kleiner’s most prominent investment partner, Mary Meeker, left to start her own company. Nonetheless, it is one step away from Kleiner’s last major fundraiser in 2016, which raised $ 1.4 billion for a growth-stage vehicle and an early-stage fund.
Meanwhile, fundraising data from Crunchbase shows a large amount of US funds of $ 200 million or less closing in 2019, as well as several more that are apparently still in fundraising mode. So far, funds of more than a billion dollars are quite scarce.
Next, we take a look at the 2019 class of hedge funds, including newcomers, as well as follow-up funds from established companies. We also focus on the rising stars, the newer companies that have raised new bigger funds.
No matter how many existing venture companies are looking for startups, there is always a niche that some newcomers will identify as underserved. So far, 2019 has been no exception.
At least five U.S. venture companies have announced closures of their inaugural funds this year.1
Probably the highest-profile new entrant this year comes from a well-known Silicon Valley investor, Steve Jurvetson, 34-year-old founder and former managing partner of VC DFJ firm. Jurvetson closed this month with $ 200 million for Future Ventures, which will focus on early-stage deals in areas including space exploration, quantum computing, artificial intelligence and synthetic biology.
Another prominent newcomer is Motley Fool Ventures, which is a technology-focused venture fund in its early stages and is linked to the investment platform The Motley Fool. In a twist on the typical venture capital model of raising capital from large institutional investors, contributors to the $ 146 million fund are primarily members of the Motley Fool.
The largest funds
Established VCs have also been raising new funds. So far this year, we have not seen a pure investment venture capital firm close a US fund of $ 1 billion or more.2 However, we have seen a number of fairly large funds from well-known VCs.
Last week, Menlo Ventures, a longtime Valley firm that led one of Uber’s rounds in its early stages, closed with $ 500 million for its first Inflection Fund, which will focus on growth-stage startups. .
And on the biotech front, California-based 5AM Ventures proved the early-stage bird can get the follow-up investment, raising $ 500 million in two new funding. And on the East Coast, Boston-based MPM Capital closed with $ 400 million for its seventh flagship fund.
So far this year, we’ve also seen several relatively new venture capital firms raise larger follow-up funds. By relatively new, we generally mean companies that closed their first fund less than five years ago.
Typically when we see that a company is raising a larger or more stable follow-up fund, it indicates a rising star. It usually means that your existing portfolio has had some successes, and investors are optimistic about the future prospects.
The Edtech Owl Ventures investor meets these criteria. The five-year firm closed $ 316 million for its third major fund this year. To date, the San Francisco-based Owl has invested in at least 24 companies, with a couple of outings and multiple rounds to its credit.
Enthusiasm for the cybersecurity space fueled the fortunes of another company on our rising stars list, TenEleven Ventures. The five-year-old Silicon Valley-based venture firm closed this month with $ 200 million for its second early-stage fund.
Clearly, not everyone can raise a billion dollar venture capital fund. And not all want. In particular, in the early stages, the long-standing practice of raising small and medium funds is alive and well.
That said, a couple of months of fundraising data doesn’t necessarily indicate a long-term trend. We could see a series of funds of more than a billion dollars in the coming weeks. Or not.
For now, however, it appears that the pressure to become the next SoftBank has lessened as the unicorn-chased giants have seized their niche and smaller funds are looking for other opportunities.
We focus on US-based companies that raise funds to make investments in US companies. This does not include, for example, a Silicon Valley-based company that is raising a fund focused on China.
We also do not include Spark Capital, which has filed securities filings presenting plans to raise a sixth flagship fund of $ 400 million and a growth-stage fund of $ 800 million. The New York and Boston-based firm, known for its early investments in Twitter, Slack, Coinbase and other unicorns, is expected to meet or exceed its fundraising targets, but has not yet officially closed the funds.
- The dataset includes firms that closed new funds this year, but many have already made various investments to date. More firms filed SEC filings indicating plans to raise new funds. We limited the list to companies that disclosed the closing of capital.
- The dataset did not include TCV, a firm that closed a $ 3.2 billion flagship in January. This is because while TCV supports some deals in the risk stage, it is primarily a growth stage investor and also buys stakes in public companies.