This week, it was announced that Menlo Park-based venture capital firm New Enterprise Associates successfully completed fundraising for the largest venture capital vehicle ever raised. The firm closed its fifteenth flagship vehicle on $2.8bn, with an additional $350mn through the NEA 15 Opportunity Fund. With a significant proportion of the world’s venture capital firms based in California, particularly within the globally renowned tech hub of Silicon Valley, this blog will look at whether California’s venture capital scene is back to the levels reached at the height of the 2000 tech bubble.
Looking at the annual number of venture capital funds to reach a final close, the year 2014 ranks a close second to 2000; 95 such vehicles were raised by California-based firms in 2014, compared with 97 in 2000. By aggregate capital raised, 2014 again falls behind 2000, but by a much greater margin. While 2014’s $17.5bn total is the second largest amount to be raised by California-based venture capital fund managers in a year, it is less than 60% of the $31bn collected by California-based GPs in 2000. The chart below lists the 10 largest venture capital funds ever to be raised by fund managers based in California; notably, all these GPs are headquartered in Silicon Valley.
The region’s historic high levels of fundraising are strongly linked to the 90’s dot-com boom and the record growth of internet-related companies concentrated in this area of the US. Venture capital firms raised vast amounts of capital to take advantage of the arising investment opportunities within a short time period, with $67bn raised between 1999 and 2001. Once the crash hit and values of portfolio companies plummeted, the amount of capital raised saw a sudden drop, with only $6.9bn secured over the following two years. Figures picked up again in 2004, but at a slow pace, and failed to reach the levels of 2000, before being hit again by an extreme market event: the global financial crisis.
Preqin’s Funds in Market data shows that 2014 was the most successful year for venture capital fund managers in California for 15 years and, if fundraising continues as in 2015 YTD, the levels seen in 2000 will be closely matched. There have been 27 funds to reach a final close in 2015 so far, securing an aggregate $7.1bn; the majority of these funds are early stage vehicles (52%), 41% invest across all stages and 7% focus on expansion stage investments. However, some commentators in the industry believe that this ‘tech bubble 2.0’ is about to burst, with concerns over portfolio companies being overvalued. As the industry sees an increasing number of successful IPOs and acquisitions delivering high returns to investors, the list of highly valued companies is only likely to keep expanding.