Venture Capital Money Flow Continues

Venture capital firms have always stressed and emphasized their important role, not only as traditional financial intermediaries, but also as a critical component of fueling and advancing technology development and innovation.

Since October of last year our economy and the stock market have experienced difficult times. We hear about gloom and doom now on daily basis. However, as unpleasant as this picture may be, the impact of it seems to have no consequences or direct connection with venture capitalists who continue to pour money into venture capital funds, signaling they are confident in the long-term future.

Businessweek on Monday published a piece, the data of which I thought was in sharp contrast with the current economic prospects.

It said, some 71 venture capital funds, according to a survey released July 14 by Thomson Reuters (TRI) and the National Venture Capital Association, raised $9.1 billion during the 2Q, fiscal ‘08. A 3% increase on a year-over-year basis.

There is however, a flight to quality. The number of funds raised in the quarter fell 14%, down from 83 in the year-ago period.

Older firms with longer track records raised the largest amount of money. Lightspeed Venture Partners, an eight-year-old Silicon Valley firm that has backed Blue Nile (NILE) and Transmeta (TMTA) among others, raised the single largest fund, at $800 million.

Kleiner Perkins Caufield & Byers, which has financed Google (GOOG), Intuit (INTU), and Amazon.com (AMZN), raised $700 million for investments in startups, and another $500 million fund to invest exclusively in later-stage companies formed to help solve climate problems. And Foundation Capital, a 16-year-old Silicon Valley venture firm that has funded Netflix (NFLX) and a number of clean technology startups, boasted the second-largest fund at $750 million. The fund will set aside $250 million to expand the firm’s practice in environmental investing.

“There is so much money out there,” says Adam Grosser, general partner of Foundation. “The scarier metrics for me is that most things get funded.”

Investments in information technology continues to drive the market with China and India gaining priority as an attractive location for investments.

The Carlyle Group recently closed its fourth Asian Growth Fund for $650 million.

Intel Capital, the venture capital arm of the giant chipmaker (INTC), closed a $500 million fund to invest in Chinese wireless broadband, media, telecommunications, and green technologies.

The most successful firms are raising more money than they expected. Lightspeed Venture Partners, for example, says it sought to raise $675 million, but ended up netting an additional $125 million. “We had access to more than that,” says Chris Schaepe, managing director of Lightspeed. “Each of our funds is a top-quartile performer.”

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