VC Fundraising Hasn’t Slowed Down — For the Big Funds

Mega funds drove fundraising totals to nearly $43 billion, even as first-time managers struggled to raise capital during the pandemic.

Illustration by II

Illustration by II

Venture capital funds closed in the first half of 2020 have boasted one of the largest fundraising totals in the past decade — raising more money in just six months than VCs in all of 2017, 2015, or the preceding years.

This is according to the latest industry report from PitchBook and the National Venture Capital Association, which tracked venture capital activity through the end of June. The Silicon Valley Bank and compliance software firm Certent also contributed to the report.

“While many of these funds likely began fundraising before the uncertainty of the pandemic affected the markets, closing these massive vehicles over the last two quarters remains an impressive feat,” the report stated.

Funds that closed during the first half of 2020 had raised a total of more than $42.7 billion — “which already surpasses the full-year total for every year of the decade apart from 2016, 2018, and 2019,” PitchBook and the NVCA said.

This “lofty” total was largely driven by so-called mega funds, defined by the report as those with at least $500 million in assets. Of the 148 funds that closed in the six-month period, 24 were mega funds, according to PitchBook and the NVCA.

“This explosion of outsized funds drove the 2020 median fund size back over $100 million for the first time since 2007,” the report stated. In 2019, by comparison, the median fund size was $50 million.

In 2019, by comparison, the median fund size was $50 million.

Average fund sizes spiked even more significantly, more than doubling from $146.1 million in 2019 to $300.9 million for the first half of 2020. According to the report, the 15 largest funds closed in the first half of 2020 accounted for $22.7 billion — “over half of all VC fundraising in the year so far.”

[II Deep Dive: The Venture Capitalists Forging Ahead]

“Much of the success of established VCs has to do with their positive historical performance and name recognition, which has been particularly helpful in a period when no face-to-face meetings are taking place,” the report stated.

Fundraising has proven much more challenging for first-time managers, with just $1.5 billion raised across 14 first-time funds in the first half of 2020. In all of 2019, by comparison, 73 first-time funds raised $5.2 billion.

“First-time funds have seen a noticeable drop in new closed funds through Q2 2020, likely due to their inability to capitalize on existing investor relationships,” the report said. “We don’t expect first-time fundraising activity to rebound in 2020, as economic uncertainty will encourage a flight to safety for LPs. If the pandemic lasts long enough, this flight could cut down on new allocations to VC, especially to unproven managers.”

All of VC, in fact, could face fundraising challenges if exit activity doesn’t recover, the report’s authors warned. The number of exits in the first half dipped to 376 amid the pandemic — well below the thousand-plus exits tracked in 2018 and 2019, according to PitchBook and the NVCA.

“Exit count in 2020 is tracking to be the lowest since 2011, and value is pacing to drop back toward the levels seen pre-2017,” the report stated. “This is a significant reduction in the number of companies that are achieving liquidity for investors, which could have serious implications for the rest of the VC ecosystem, especially if the pandemic doesn’t subside in the near term.”