Bi Xuan Lim, Charmaine Choy
North America is home to the majority (57%) of LPs that were active in venture capital funds in 2017. Given that GPs typically have a better understanding of LPs’ requirements in their home regions, fund managers tend to attract a large proportion of investors domestically. Consequently, it is unsurprising that North America-based venture capital funds continued to dominate the fundraising market in 2017: 262 funds reached a final close, securing an aggregate $35bn in investor capital. This is greater than the total capital ($21bn) raised collectively by 185 vehicles headquartered in Asia and Europe.
Despite Europe-based venture capital funds securing just 13% of aggregate capital raised globally in 2017, the region saw a favourable fundraising environment. As shown in the chart below, 90% of venture capital vehicles raised by managers located in Europe met or exceeded their target size, compared to 79% and 65% of North America- and Asia-based funds respectively. This may be as a result of the recent European Venture Capital Funds (EuVECA) regulations imposed by the EU to address certain issues that arose from the adoption of the AIFMD. The new changes include greater flexibility on venture capital investments across the region as well as limiting the imposition of host fees and charges, making the asset class more attractive to investors.
When looking at the time taken for venture capital funds to reach a final close, North America-based vehicles that closed in 2017 spent an average of 14.4 months on the road, well below the global average of 17.1 months. Vehicles raised in Europe took an average of 18.4 months to reach a final close, while Asia-based funds spent an average of 20 months on the road.
Preqin’s Fund Searches and Mandates feature reveals that of the LPs that are actively seeking to commit to venture capital funds over the coming year, the highest proportion (40%) are based in Europe, followed by investors headquartered in North America (29%) and Asia (21%). Within Europe, public pension funds (18%), foundations (16%) and family offices (13%) are the most prominent investor type* looking to target venture capital strategies. The Lausanne-based Caisse de Pensions de l'État de Vaud is planning to invest an estimated CHF 250mn in venture capital funds globally in the next 12 months. UK-based Nuffield Foundation will be looking to invest in the asset class in the coming year and has a preference for developed markets such as Europe and North America.
*Excluding fund of funds managers.