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1H 2013 Venture Capital
Fundraising and
Capital Overhang
Report

PitchBook
Bet ter Data. Bet ter Decisions.

Introduction
Venture capital (VC) deals steal most of the media attention, but in VC circles much of the recent discussion about
the industry has centered on the topic of fundraising. Everyone knows that capital is the lifeblood of startups, but
it also plays a similarly crucial role for VC funds. Unlike their counterparts on the private equity side, VCs do not
typically take out large amounts of debt to fund their deals, so virtually every dollar of capital invested in their
portfolio companies comes straight from their fund. To that end, having a reserve of capital to deploy is essential.
This is why many people are worried that for the fourth consecutive year VC firms have invested more capital than
they have raised.

Looking at the VC capital overhang, there is $63.5 billion of dry powder currently available to VC firms. Considering
that VC investment has averaged $26.6 billion annually over the last four years, that means VC firms currently have
less than 2.5 years’ worth of capital on hand.

Another major concern has been the burgeoning size of VC funds, as the average fund size nearly doubled from
2009 to 2011. Larger fund sizes may seem like a positive trend on the surface, but it is actually a result of a massive
consolidation of capital with a few of the premier managers of the last decade. Furthermore, larger funds have a
necessity to write larger checks, which could lead to a shortage of capital for early stage investments. However, the
average fund size had a meaningful 37% drop in 2012 as VC firms had more success raising funds of less than $100
million. Additionally, there were 14 first-time funds raised in 2012—more than double the number from 2011.

This report examines current U.S. fundraising trends from several angles to provide a holistic picture of the current
fundraising environment. We hope the charts, graphs, and analysis provide you with better data for better
decisions.

***Editor’s Note: All fundraising totals and the capital overhang exclude corporate VC allotments and angel
investments made through private accounts. However, capital from these types of investors are included in all of
PitchBook’s VC investment totals. This explains why the capital overhang increased in 2012 despite there being more
capital invested than there was raised.

Edison Ventures was founded in 1986. We partner with entrepreneurs to help them build successful, high growth companies. Edison
provides capital and value-added services to growth stage ($5 to 20 million revenue), technology businesses. Investments range from $5 to 10
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In addition to providing expansion capital, Edison funds management buyouts, recapitalizations, spinouts and secondary stock purchases.

Edison’s HQ is in Lawrenceville, NJ. Our investment professionals are based in New York, NY, McLean, VA, Needham, MA, and Cleveland,
OH. Industry specialties include financial technology, healthcare IT, enterprise 2.0, interactive marketing and ecommerce. Edison has made more than 160
investments and realized over 110 successful exits generating substantial proceeds for founders, management, employees and investors.

Edison Ventures manages over $800 million. For more information please visit www.edisonventures.com and follow us on Twitter @edisonventure.

COPYRIGHT © 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means – graphic,
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of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to
be relied upon as such or used in substitution for the exercise of independent judgment.

1H 2013 PE Fundraising and Capital Overhang Report 1 www.pitchbook.com | demo@pitchbook.com | 877.267.5593
www.edisonventures.com | @edisonventures

PitchBook

VCs close 90 funds, most since 2008
$10 40
$9
35 Fundraising by Quarter
35
$8 30 30
30
$7 26
22 23 25
$6 21
$5
18 20
15 15
$4 12 14
15
$3 16
10
$2 11 11
$1
9 5
$5.1 $1.3 $4.0 $2.6 $8.7 $1.9 $3.0 $3.7 $5.5 $5.3 $2.9 $6.0 $7.4 $4.0 $7.0 $1.8
$0 0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2009 2010 2011 2012

Capital Raised ($B) # of Funds Closed Source: PitchBook

Capital raised increases for the fourth consecutive year
In one of the more interesting VC
statistics from the year, the number of $45 181 Fundraising by Year 200
VC funds closed in 2012 skyrocketed $40 180
158 157 147
61% from 2011 while the amount of $35 160
capital raised only ticked up 3%. The 153 140
$30
phenomenon stemmed from a strong 120
increase in the number of small funds, $25 90
85 100
as the number of vehicles with less than $20
80
$50 million nearly tripled from 2011 to $15 77 60
2012. Another positive trend in 2012 $10
was the return of first-time funds, which 56 40
more than doubled from 2011 to 2012. $5 20
$17.6 $30.3 $31.3 $40.7 $30.7 $12.9 $17.2 $19.6 $20.2
Still, there were only 14 first-time funds $0 0
in 2012, which is the second lowest total 2004 2005 2006 2007 2008 2009 2010 2011 2012
in the last decade.
Fundraising in the VC industry Capital Raised ($B) # of Funds Closed
Source: PitchBook
can be quite sporadic from quarter to
quarter, but 4Q 2012 stands out as being
particularly weak, with just 11 funds memory as VC firms raised more than seeking capital for nearly 300 vehicles.
closing on a total of $1.8 billion—some $7 billion in both 1Q and 3Q. Small funds should continue to see
of the lowest totals in the last four years. Looking ahead into 2013, fundraising success in 2013 as well, as the average
However, 2012 did post two of the should continue to accelerate since there target size for currently open VC funds
best quarters for fundraising in recent are more than 250 investors currently is just $141 million.


PitchBook

VCs refocus their attention on smaller funds in 2012
As the accompanying charts show,
there was a drastic swing in the size of
Fund Count by Fund Size
VC funds raised from 2011 to 2012. 100%
VC investors closed just 17 funds of 90% $1B+
less than $100 million in 2011, which
80%
is less than half the next lowest total $500M-$1B
from the last decade. Many investors 70%
expressed concern throughout the year 60% $250M-$500M
about the dearth of smaller funds and 50%
the potential ramifications it could $100M-$250M
have for companies seeking early stage 40%
financings. Perhaps some of these 30% $50M-$100M
fears will be abated thanks to a strong 20%
resurgence of these vehicles in 2012, Under $50M
10%
as funds of less than $100 million
expanded from 31% of all VC funds in 0%
2011 to 49% in 2012. 2005 2006 2007 2008 2009 2010 2011 2012
Another positive trend stemming Source: PitchBook
from the increase in smaller funds is
a growing number of new VC firms; Capital Raised by Fund Size
10 of the 35 funds that closed with
less than $50 million in 2012 were 100%
from firms raising their first fund. It 90%
is important to note that while the 80% $1B+
number of first-time funds more than
70% $500M-$1B
60%
Funds with less than 50% $250M-$500M
$100M increase to 49% 40% $100M-$250M
of all funds in 2012 30%
20% $50M-$100M
doubled to 14 in 2012, there were
10% Under $50M
regularly more than 40 first-time VC
funds raised annually throughout the 0%
early to mid-2000s. The future looks 2005 2006 2007 2008 2009 2010 2011 2012
bright though, as there are more than Source: PitchBook
100 VC firms currently raising capital
for their first vehicle. mega funds of $1 billion or more checks that blur the line between VC
VC firms enjoyed more success may not necessarily be a bad thing, as and private equity growth investing.
raising capital for funds of virtually some VC professionals had expressed In addition, with the limited amount
all sizes in 2012, with the $1 billion concern about the amount of capital of capital currently available to VCs,
and over size range being the only being concentrated in a relatively small having a large proportion allocated to
size bucket to see fewer funds closed number of funds. just a few funds could limit funding for
in 2012 than 2011. The downtick in Larger funds inevitably lead to larger startups and early stage ventures.


PitchBook

Average fund size drops 37%
$400 Average Fund Size & No. of Large Funds $357
25
$350
20
$300 $275

$250 $221 $225
$207 $207 15
$200 $172 $180

$150 $119 10

$100
5
$50
3 12 17 21 19 8 10 15 13
$0 0
2004 2005 2006 2007 2008 2009 2010 2011 2012

No. of Funds Larger Than $500M Average Fund Size ($M)
Source: PitchBook

LPs make larger commitments to VC funds in 2012
The average VC fund size escalated
$35 Average LP Commitment ($M) to VC Funds
quickly following the financial crisis,
nearly doubling from $180 million $30
in 2009 to $357 million in 2011.
Whether it was a conscious reaction $25
or not, VC firms swiftly worked to
reverse the trend, as the average fund $20
size fell 37% to $225 million in 2012.
As the chart above reveals, much of $15
the run-up in fund sizes was due to a
lack of small funds, as opposed to a $10

surge in large vehicles.
$5
It appears that the decline in fund
sizes will continue into 2013, as $14 $14 $21 $17 $17 $30 $19 $18 $28
$0
the average target size of currently 2004 2005 2006 2007 2008 2009 2010 2011 2012
open funds is just $141 million. Source: PitchBook
Furthermore, more than half of the
currently open funds are seeking $100 highest total from the last decade. This reevaluate their current relationships.
million or less. may be a reflection of the growing As LPs begin to pare down their
Interestingly, while the average fund scrutiny of the asset class; many LPs number of VC investments, it should
size dropped substantially in 2012, the have expressed doubts about VC force investors to write bigger checks
average institutional LP commitment investing after more than a decade in order to keep their allocation to the
size rose to $28 million—the second of subpar returns and have begun to asset class stable.


PitchBook

VCs have less than 3 years of capital
VC Capital Overhang
$20 $90
$18.26
$18 Cumula ve Overhang
$80
$16 $15.15
Current Overhang ($B) by Vintage

$70

Cumula ve Overhang ($B)
$14
$60
$12 Overhang by Vintage
and Fund Size $10.23 $50
$10 $8.29
$7.73 $40
$8
$30
$6
$3.87
$4 $20

$2 $10

$0 $0
2007 2008 2009 2010 2011 2012

Under $50M $50M-$100M $100M-$250M $250M-$500M $500M-$1B $1B+
Source: PitchBook

As the capital overhang does not imminently. Otherwise, VC firms
included corporate VC allotments and risk missing their investment window
Cumulative Overhang
investments made through private and may have to return money to As of year Amount ($B)
accounts, the capital overhang actually investors. This should be a positive
increased slightly in 2012 despite there for the industry in light of the weak 2006 $73.5
being more capital invested than there fundraising in recent years. 2007 $85.4
was raised. Still, the capital overhang Another important feature of the
has dropped a meaningful 22% since overhang is the dearth of capital 2008 $85.3
2009, and the $63.5 billion currently available in 2009 and 2010 vintage 2009 $81.9
available to VC firms represents less funds; although, this should be
than 2.5 years’ worth of capital if somewhat expected with the anemic 2010 $69.6
investors continue investing at their fundraising numbers posted in 2011 $61.3
current rate. those years. The lack of available
Interestingly, VC firms still hold capital in these vintages could 2012 $63.5
nearly $18 billion of capital in 2007 dampen investing in the next couple Source: PitchBook
and 2008 vintage funds. Of course, of years. Fortunately, there is the
it is important to consider that there aforementioned stash of capital in concentrated in funds of more than
was a total of $71.5 billion raised in earlier vintages, but VCs still may $500 million. That bodes well for
2007 and 2008, so it will naturally take have to draw down more recent companies seeking large late stage
a bit longer for managers to allocate vintage funds more quickly than they rounds, but as we have discussed
all of their capital. As these funds normally would. throughout this report, it could pose a
begin to eclipse the five-year mark, It is also worth noting that 55% challenge for startups and early stage
capital will need to be put to work of the currently available capital is ventures.


PitchBook

VCs invest more than they raise for the 4th straight year
One of the best ways to put VC
fundraising into context is through $50 VC Capital Invested v. Capital Raised
juxtaposition with investment numbers.
As we have mentioned throughout this $40
report, VC investment has outstripped
$30
fundraising for four consecutive years.
Much of this trend is the result of an
$20 $14.3 $14.7
uptick in investment from corporate
VC arms and angel investors, which $8.7
$10
are not included in the fundraising
$1.4
numbers, as well as a significant
$-
reduction in the capital overhang.
2005 2006 2007 2008 2009 2010 2011 2012
In 2012, there was $7.6 billion
$(10) -$7.4 -$6.7 -$7.6
more VC capital invested than was
raised through VC funds. While this $(20) -$14.8
is an improvement from 2011, the
trend can’t last much longer, as many Net VC Capital ($B) Capital Invested ($B) Capital Raised ($B)
LPs are reducing or eliminating their Source: PitchBook
allocation to the VC asset class. These
developments have led some people to the amount of dry powder available 2.3 years’ worth of capital available to
wonder if there needs to be a systemic to VC firms has dwindled from $85.3 invest. Considering this, VC firms will
change in how the VC industry billion in 2008 to $63.5 billion in 2012. either have to curtail their investing or
operates. If VC firms continue to invest at their find new ways to attract capital to the
Due to the aforementioned factors, current rate, there would be about asset class in the coming years.

Select currently open funds Source: PitchBook

Firm Fund Fund Type Fund Target Size ($M)
Technology Crossover Ventures Technology Crossover Ventures VIII General VC $2,500
Chesapeake Energy Chesapeake NG Ventures Fund General VC $1,000
Mithril Capital Management Mithril Growth Fund General VC $1,000
VantagePoint Capital Partners VantagePoint CleanTech Fund III General VC $1,000
Kleiner Perkins Caufield & Byers KPCB Green Growth Fund II General VC $764
Raine Partners Raine Partners I General VC $500
Sequoia Capital Sequoia Capital US Venture Fund General VC $450
Social + Capital Partnership Social Capital Partnership General VC $450
KPCB XII Annex Fund Kleiner Perkins Caufield & Byers General VC $360
JAFCO Technology Partners V JAFCO Ventures General VC $300
Proteus Venture Partners Fund I Proteus Venture Partners General VC $300
NewPath Ventures New Path Ventures II Early Stage VC $300
Avalon Ventures Avalon Ventures X Early Stage VC $250
Azure Capital Partners Azure Capital Partners III Early Stage VC $250
Union Square Ventures Union Square Ventures 2012 Fund Early Stage VC $200
Cardinal Venture Capital Cardinal Venture Partners II Early Stage VC $160


94,173 Deals
24,826 Investors
58,500 Companies
8,781 Service Providers
6,641 Limited Partners
17,285 Funds

* All PitchBook data sourced from the PitchBook Platform as of 1/22/2012
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