VC Funds Slump To 7 Year LowVC Funds Slump To 7 Year Low

Venture capital funds continued to be mired in the doldrums. Combined, they reported raising just $1.9 billion in the U.S. in the second quarter -- a sharp 49% drop from the $3.7 billion that was raised in the first quarter.

The report, released Monday by Thomson Reuters and the National Venture Capital Association (NVCA) noted that the dismal showing represents the lowest VC dollar commitments since the third quarter of 2003. The slow showing was generally attributed to the poor overall economic conditions.

"Ongoing economic uncertainty has kept many limited partners and venture capital firms on the fundraising sidelines in 2010 and this hesitation is likely to continue for the remainder of the year," said NVCA president Mark Heesen in a statement. "Recent positive activity in the exit market, particularly on the M&A side, could generate some meaningful cash distributions which would pave the way for firms looking for a receptive investor base."

The report noted that there were 26 follow-on funds and 12 new funds raised in the second quarter of 2010. Olympus Capital Partners Fund I, L.P., of Menlo Park, Calif., raised $150 million in its first fund, becoming the largest new fund that reported commitments in the second quarter.

Among established funds, Venrock Associates VI L.P., collared $325 million in the quarter while Polaris Venture Partners VI, L.P., raised $213.8 million during the quarter.

Heesen expressed hope that the market could become crowed in 2011 and beyond because the pipeline of VC firms poised to raise new money for their next funds is growing.

Venture capitalist firms have recently been cashing out of past investments -- another indication that VC funds are likely to start new funds in the coming months. Another positive sign was that 17 venture-backed startups went public in the second quarter.