Top venture firms have been “remarkably resilient” amid the global recession and the coronavirus pandemic, said Elizabeth Clarkson, managing director at Sapphire Ventures and a limited partner in venture funds.
The amount collected by funds globally in the first half of 2020 was 19% greater than in the first half of 2019, and exceeded the same periods going back through at least 2015, according to Preqin.
But there were fewer funds attracting interest. Just 292 venture funds closed in the first six months of the year, 35% fewer than in the same period in 2019 and the lowest number in any of the same periods going back to at least 2015, according to Preqin.
The strongest showing came out of North America, where 164 funds collected $42bn in the first six months of 2020, compared with $24.6bn through 233 funds a year ago.
In the midst of greatest uncertainty around March and April soon after the coronavirus pandemic hit, US venture firms were pulling in billions of dollars. Lightspeed Venture Partners, for example, raised $4.22bn for three new funds, including its first global opportunity fund. General Catalyst Partners raised $2.3bn, and Index Ventures raised $2bn. In each case, fundraising exceeded those firms’ prior fund totals.
Through raises like this, North America dominated the global venture market. North American funds collected 5.5 times the amount pulled in by counterparts in Asia in a weak showing in the first six months of the year.
Just 55 venture funds in Asia raised $7.7bn through 30 June of this year, down from 119 funds raising $17.8bn a year earlier, and the lowest amount going back through at least 2015, according to Preqin. The North American advantage first became clear in 2019, following several years of a reverse situation, where Asian funds raised more.
In the US, limited partners tended to deploy capital into tried and tested venture fund managers, which were able to amass more capital than ever.
“There’s some level of belief among [limited partners] that if you are with a manager that’s been through upmarkets and downmarkets, they might have some best practices, some muscle memory [to deal with the current recession],” Clarkson said. She added that there’s a worry that “a newer manager that has never seen anything but a bull market might not have the same muscles.”
That makes it easier for firms to raise funds with their track records when the economy tanks, Clarkson said, adding “That’s a playbook which is true until proven untrue.” Some of the emerging firms may yet outperform established ones in the current cycle, she noted.
