Corporate Financing Analysis - VC Fundraising Rally Bodes Well For Investments - 13 MAR 2017

The venture capital (VC) industry has entered 2017 in a strong position. After a year of contrasting fortunes that saw the industry endure depleted investments, but simultaneously record a post-dot com bubble high for fundraising last year, the global venture capital (VC) industry now finds itself sitting on a bumper pile of dry powder and is consequently in a favourable position to deploy capital for deals as optimisms returns to the broader M&A arena in 2017. We note that the VC fundraising rally comes amid a broader push of investors (predominantly institutional) into alternative assets as they attempt to diversify their portfolios, in part due to the ability of alternatives to outperform public markets over the long term. The results of a recent survey conducted by Preqin at the end of H216 showed that four fifths of all institutional investors make commitments to at least one alternative asset class, a rise of one percentage point from H116.

Capital Commitment Increase

2016 saw VC investor commitments to new PE funds increase for the third consecutive year, with the level of capital raised rising to USD51.3bn, up from USD44.9bn in 2015 and USD42.4bn a year earlier in 2014 - according to PitchBook data. During this period, the actual number of VC funds that closed after reaching their targeted level of capital commitments remained flat y-o-y at a level of 328 in 2016 and down from the recent high of 358 fund closes recorded in 2014. This acceleration in aggregate capital commitments across the same number of funds means that funds have become increasingly ambitious in targeting higher levels of capital and it appears that they have been successful in securing it too. Indeed, 90% of all VC fundraising globally went to funds that closed on more than USD100mn in commitments last year. We note that the largest close was made by Technology Crossover Ventures with its TCV IX fund, a USD2.5bn closure with a set focus on growth-stage investments. In total, thanks to three consecutive years of increase in fundraising, VC industry levels of dry powder now sits at a record high of USD121.4bn, PitchBook data show.

A Return To The Dot Com Era?
VC Industry Fundraising Commitments by Deal Value, USDbn
Source: PitchBook

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