Venture bounces back – for some

New Enterprise Associates, closing its thirteenth fund at some $2.457 billion, showed the power of a premium brand and a strong track record, even in what NEA Managing General Partner Peter Barris rightly called “an incredibly challenging time for the venture capital industry.” Certainly, the final amount was short of the $3.3 billion+ at one time hinted as the ultimate target for the vehicle. Also, many commitments to the fund must have been locked in prior to the worst depths of the financial crisis in late 2008 – NEA has already been investing from the fund since May 2009. Nonetheless, a VC fund with a mandate to invest globally all the way down to early stage and seed capital has been closed in the industry’s worst-ever funding crisis at a higher figure than all but the biggest buyout funds raised for Asia Pacific even at the height of the 2006-07 boom.

NEA is probably capable of handling this amount if any VC firm can: it has long played at the big-ticket end of the VC market, with the recent $60 million in India’s Financial Software & Systems Ltd. in partnership with Jacob Ballas Capital India not untypical. And the result ought to still the critics, including not a few along Sand Hill Road, who argue that the US VC model has never really undone the excesses of the dotcom era and faces continuing challenges to its very existence. Mark Heesen, NVCA president, at once hailed the success of NEA XIII as a positive development for the whole industry. But is it? With so much of the entire VC capital-raising for 2009 – around 17%, according to NEA – committed to just this one firm, the outcome seems more like the latest twist in the much-heralded consolidation in VC and private equity, where the top-quartile/top-decile maxim turns round and bites. All the money that went into NEA XIII will be denied to other firms, and in itself represents a big concentration of risk. 

After all, the accepted wisdom, all the way from early stage VC to full-on buyouts, that only the top quartile, or top decile, of funds truly outperform has always carried with it the assumption that LPs will be around to fund the other 75-90%. After 2008-09, perhaps they won’t be. And the LPs should be hoping for an ice- and accident-free winter at 2855 Sand Hill Road.

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• Topics
• Funds
• Fundraising
• Venture
• Peter Barris
• New Enterprise Associates