Is This Venture Capital?


After Thomson Financial and the NVCA released fund-raising stats yesterday, most media outlets focused on the number of funds raised or the total dollar amount pulled in (68 funds raised $7.1 billion). But the big takeaway should be the growth of expansion-stage and late-stage fundraising.

Although 39 early-stage funds (led by such stalwarts as Draper Fisher Jurvetson and Emergence Capital Partners) raised about $2 billion during the quarter, 10 expansion funds raised $2.8 billion in the second quarter of 2007, shattering the previous record from the first quarter of 2000 when three funds raised $1 billion.

Among the funds active in Q2 07 were Insight Venture Partners VI (which raised more than $900 million); Institutional Venture Partners XII ($600 million); and Sequoia Capital China Growth Fund (about $430 million).

In addition, 10 balanced-stage funds and seven later stage funds, including the third largest fund of the quarter (North Bridge Growth Equity I at $545 million), accounted for more than $2.4 billion during the quarter.

When we ran these numbers ourselves last week in advance of the Thomson/NVCA report, I half expected the VC industry to sound an alarm and say that maybe Sevin Rosen Funds was right: VC is dead.

After all, when I tell people what I do for a living, I’m often asked, “What is venture capital?” and “How does VC differ from other investments?”

I always point to startups, or early stage deals, as the cornerstone for what makes a deal a part of VC. That definition has its shortcomings, especially now that more and more venture firms are getting a taste of opportunities with established companies. And they are finding these companies proven traction in the marketplace are quite palatable. I can’t deny the upside any more than Institutional Venture Partners and all the rest that are jettisoning early stage.