VC Mega Funds Are on the Rise

Investors are pouring capital into increasingly large venture capital funds, according to a new PitchBook report.

Michael Nagle/Bloomberg

Michael Nagle/Bloomberg

Venture capital firms are raising mega funds at a heated pace as deal activity surges.

VC fundraising has shifted toward larger pools since 2012, with 15 mega funds raising a total of $14.4 billion this year, according to a PitchBook report expected to be released Wednesday. Another 25 mega funds, which aim to raise at least $500 million from investors, are in the market.

“We could very well see a new annual record in capital raised over the next few years,” PitchBook, a private-capital data provider, said in the report. “Investor confidence in VC continues to run hot as fundraising activity heads toward another strong year, laying the foundation for large masses of capital deployment to continue in the years ahead.”

Mega deals, with valuations of at least $100 million, are on pace to set a record in the U.S. this year based on total number. The rise in activity follows a surge of mega deals in 2018, with total VC deal value now poised to exceed $100 billion for a second straight year, according to the report.

PitchBook has tracked 185 mega deals this year through September, compared with an unprecedented 207 in all of 2018. These “outsized transactions” represent 43 percent of this year’s deal value, which has climbed to a total of $96.7 billion, the data provider said.

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The trend toward larger funds is also evident below the mega level.

Almost half of all funds raised this year are at least $100 million in size, up from about 30 percent in 2014, according to PitchBook. Meanwhile, the portion of micro-funds, which raise less than $50 million, has shrunk. Micro funds represent 33 percent of total VC pools this year, down from about 60 percent in 2012, according to the report.

While the West Coast is “not loosening its grip” on venture capital, East Coast cities such as New York and Boston have attracted a strong share of deal making, PitchBook said. New York, for example, has seen a record 17 percent of deal value this year.

During the third quarter, the West Coast attracted 38 percent of VC deals, representing 58 percent of total deal value in the U.S. The next most popular region for venture capital was the mid-Atlantic, drawing 20 percent of deals and 16 percent of total valuation. New England was the third busiest region for VC deals, with about 10 percent of total U.S. deals and value in the third quarter.

Venture capital managers have largely favored initial public offerings to exit their deals, according to the report.

“A surge of huge, VC-backed IPOs helped create over $200 billion in exit value for VCs” during the first nine months of this year, PitchBook said. That’s made 2019 “the most lucrative year for exits in over a decade — with one more quarter still to go.”