Whether out of necessity or for strategic reasons, a high proportion of VCs closing on new capital this year are raising funds that are smaller than their prior ones. A number of venture firms have closed or held initial closes on funds that are less than half the size of their last ones. Others have cut back by more than a third.
The reductions are occurring across sectors, from healthcare to technology, with cleantech-focused funds essentially out of the fundraising race. Both early-stage and cross-stage venture firms are also cutting back, while growth equity, a strategy more in favor among LPs currently, appears to be on firmer footing.
Fund size shrinkage is commonly not by choice: Many firms set out with higher disclosed fundraising targets than they managed to meet. Some have also shed partners and narrowed investment focus areas.
However, for limited partners, it’s not entirely a negative indicator for a firm to cut fund size. For one, given the current challenging fundraising environment, closing a fund of any size requires some talent and track record. Moreover, there is some history of firms, such as Benchmark Capital and Accel Partners, producing some of their strongest returns after scaling down fund size.
In the following set of profiles, we look at five of the firms that have seen the largest reductions in fund size, focusing on capital raised, recent investments, and exit track records.
Location: Menlo Park, Calif.
Latest fund: Foundation Capital Fund VII, closed in April with $282 million.
Prior fund: Foundation Capital Fund VI, closed in 2008 with $750 million.
Investment focus: Early-stage Internet and technology startups.
Prominent investments: Netflix, Control4 (went public this summer), Silver Spring Networks Calix (NYSE: CALX), Chegg (in registration), Mobile Iron and Lending Club.
Changes: The firm has added three new partners this year: Adit Singh, a former associate at Comcast Ventures; Anamitra Banerji, formerly of Twitter; and Jonathan Ehrlich, a former director of marketing at Facebook. General Partners Paul Koontz and Rich Redelfs will not be actively involved in making investments for the new fund.
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