Raining Money in the VC Raise Game — Or is it?

A Boston Globe article today makes it sound like it’s raining money in the venture fund-raising game:

Five years after the dot-com bust, venture capital and buyout firms are in the midst of a new wave of fund-raising.

Firms closed on 113 private equity funds in the first half of 2005, and 267 in 2004, the largest 18-month total since the beginning of the decade, according to the research firm Thomson Financial Venture Economics. And despite the poor average performance of funds raised in 1999 or 2000, the new ones are finding no shortage of eager investors.

Indeed, money is flowing into the new crop of funds from limited partners — pension funds, university endowments, insurance companies, foundations, and wealthy individuals — chasing after the promise of returns that dwarf those from stocks and bonds. Many private equity firms are turning money away, worried that they can’t invest it profitably by bankrolling start-ups or more mature companies in today’s market.

Fine, but I think writer Robert Weisman is reading too much into things. There have always been (okay, for two decades) and there will always be (okay, for as long as the venture category exists) firms that can raise a $300mm by making a few phonecalls. Such funds can also be as over-subscribed as they’d “like” to be, with every institution and endowment in site happy to rain money on Oak, Sequoia, Menlo, NEA, KP, Matrix, etc.

But that is not the same thing as saying we’re back to undiscriminating boom times in the venture fund raising business. Instead, it is just another way of saying that the Matthew effect applies in venture capital. That’s interesting, but it’s not news either.

Related posts:

  1. Why Venture Funds Don’t Want Your Cash
  2. So Many Venture Firms, So Little IRR
  3. Blinkx Searches for Cash — Sort of
  4. A New Venture Fund Bubble?
  5. Flight to (Perceived) Quality & First-Time Venture Funds