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Venture Capital: Bigger Funds Beating Targets – May 2016

by Harry Richardson

  • 16 May 2016
  • PE
  • VC

Preqin’s Private Equity Online currently tracks over 2,700 venture capital funds that have held a final close since 2008; these funds have raised an aggregate $329bn. In recent years, venture capital-backed start-ups such as Alibaba, Facebook and GoPro have grown into global companies, gone public and returned significant gains to early-stage investors. These success stories, among other factors, have driven valuations for start-ups higher and, in turn, increased the average venture capital fund size in the years following the Global Financial Crisis. As investors seek to be a part of the next success story, venture capital fund managers have seen average fundraising levels surpass their initial targets in both 2014 and 2015, despite average fund size increasing year-on-year since 2013.

Venture capital funds closed in 2013 secured an average of $106mn; by 2015, this had increased to $154mn, reaching levels only before seen in 2011. Further emphasizing the trend, the median size of funds closed in both 2014 and 2015 was $57mn, substantially higher than any year since 2008 ($65mn). Both the mean and median fund size are so far substantially higher than any other year at $195mn and $105mn respectively.

The average size of North America-based funds stayed level in 2015 ($172mn) from 2014 ($171mn), consolidating the growth in 2013 ($125mn) yet remaining well below 2007 levels ($215mn). While the average size of funds based in both Asia ($159mn) and Europe ($118mn) were smaller than that of North America in 2015, both regions are currently seeing larger funds on average compared with 2007, when the average Asia- and Europe-based fund was $72mn and $97mn in size respectively.

Three of the 10 largest venture capital funds closed since 2008 reached a final close in 2015: US-based New Enterprise Associates 15 and Tiger Global Private Investment Partners X and Asia-based DST Global V secured $2.8bn, $2.5bn and $1.7bn respectively, highlighting the trend of growing fund sizes seen in recent years.

Venture capital funds worldwide have generally enjoyed a successful fundraise in recent years. In 2015, venture capital funds raised an average of 111% of their target size, reflecting a steady increase in the level of over-subscription since 2012, when funds achieved an average of 91% their target size. For example, the previously mentioned New Enterprise Associates 15 from New Enterprise Associates (NEA) achieved 112% of its target size, closing on $2.8bn in 2015.

When unspecified, ‘average’ refers to the mean.

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