Venture capital funds are an attractive prospect for investors due to the chances of exceptional returns for relatively low commitment values. Preqin’s Investor Intelligence online database currently tracks 3,384 active private equity investors with a preference for, or previous investment in venture capital vehicles, accounting for 60% of total active private equity investors on the database.
The chart above shows the types of investors that are seeking venture capital fund opportunities over the coming year. It is clear that fund of funds managers make up the biggest proportion of investors in venture capital funds (39%), followed by public pension funds (12%) and government agencies (7%).
North America-focused venture capital vehicles are to be targeted by 58% of venture capital investors in the next 12 months, more than any other region. Europe is also favourable, with 52% looking at fund opportunities in this region. Forty percent of venture capital investors will target Asia in the next 12 months, while 34% intend to commit to global vehicles. A recent example of an investor targeting a North America-focused venture capital fund is University of Texas Investment Management Company’s $50mn commitment to Techstars Ventures 2014. The fund is focused on early–stage/seed technology companies and held its final close at $150mn in January 2015.
The most recent Preqin survey, featured in the 2015 Investor Outlook: Alternative Assets H1 2015, shows that over a quarter of all private equity investors (26%) are looking to invest in venture capital funds in 2015. It remains the second most targeted investment, behind small to mid-market buyout funds. The sustained appeal of venture capital should not be too surprising when you consider that in the first half of 2014, venture capital funds performed better than any other type of private equity funds over the same period.