Venture capital is gaining a little love and some new money from institutional investors following a decade-long stretch of poor returns and client withdrawals.
Only a select few managers are benefiting. Some 75% of total capital raised during the first quarter went to six funds: the $1.5 billion Andreessen Horowitz Fund III LP; $600 million Canaan Partners IX; $600 million Bain Capital Venture Fund 2012 LP; $520 million Summit Partners VC Fund III LP; $375 million Charles River Ventures XV LP; and $375 million Vivo Ventures Fund VII LP, according to data from Thomson Reuters and the National Venture Capital Association.
At the same time, U.S. venture capital firms had a 5% increase in the amount of capital raised and a 34% increase in fund closings — $7 billion in 47 funds — from the year-earlier quarter.
European funds meanwhile raised $954 million in 11 funds, an 8% gain in capital raised for the same number of funds from the first quarter of 2011, according to Dow Jones VentureSource.
The rediscovery of venture capital is part of institutional investors' search for returns.
In his latest report to the $152.9 billion California State Teachers' Retirement System's investment committee earlier this month, Mike Moy, managing director in Mission Viejo, Calif., of private equity consultant Pension Consulting Alliance Inc., noted venture capital's potential for attractive long-term returns in the future.
CalSTRS, West Sacramento, is not alone in its interest in the asset class. For the 12 months ended Sept. 30, the latest data available, venture capital investment was up 26% among the top 200 pension funds surveyed by Pensions & Investments, to $34.8 billion. And a number of institutional investors ramped up their venture capital commitments in the past nine months.
In February, the $31.3 billion Tennessee Consolidated Retirement System, Nashville, committed $25 million to Canaan IX and $15 million to Bain Capital Venture Fund 2012.
This is on top of the pension system's prior commitments of up to $25 million to Lightspeed Venture Partners IX in March and up to $25 million to General Catalyst Group VI LP in December.
The $7.7 billion University of Michigan Endowment Fund, Ann Arbor, in January made commitments to two funds of information technology venture capital firm Andreessen Horowitz and is investing alongside Sequoia Capital in its U.S., China, and India venture capital and growth equity funds.