U.S. PE Funds Shrinking, VC Funds Getting Bigger by PitchBook
While most headlines on the U.S. PE and VC markets focus on deal flow and valuations, investors have quietly re-stocked their coffers on the fundraising trail. Few believe that either market can sustain their booms indefinitely, which makes fundraising a key priority while LP confidence is high. About 90% of both PE and VC funds hit their targets in 1H, a historical anomaly. Across both asset classes, if and when a downturn occurs, investors will have plenty of capital on hand to take advantage of future conditions.
On the PE side, it’s becoming evident that investors have become more conservative fundraisers and disciplined buyers. As we show on the next page, the correlation between fundraising and deal activity has become much more stable in recent years. Additionally, the average and median PE fund sizes have dropped since 2013; both the average and median hit their lowest points in 1H since 2004. Though fund sizes are smaller, GPs are benefitting by spending less time on the fundraising trail. On average, PE funds that closed in the first half were in the market only 13.9 months from start to end.
As for VC firms, it appears that fundraising trends are closely following VC activity. On page 11, we graph out the same comparison between VC financing activity and fundraising levels. The correlation between the two is much different compared to the PE asset class. VC fundraising actually outpaced total financing activity in 2006 and 2007. Since 2009, the disparity between the two has gradually increased, especially last year. What’s interesting is that VC fundraising closely followed the high trajectory in financing activity in 2014, despite the latter being skewed by non-traditional investments by hedge funds and mutual funds. In other words, it seems that VC firms are taking advantage of current market conditions to cushion against an inevitable downturn.