Venture capitalists may be storing up supplies for winter. With VC fundraising on track for its best year since the dot-com era, some investors say there’s a rush to raise cash before it disappears.
Paul Hsiao, an investing partner at Canvas Ventures, said one reason the firm raised its latest fund sooner than planned was to avoid a “correction” in the market. He said the Silicon Valley firm couldn’t afford to wait until later in the year or next year in case investors decided to put their “pencils down.” Canvas Ventures said Monday that it raised $300 million for its second fund, almost double the size of the first one from 2013.
In the first half of the year, U.S. venture funds brought in $22.9 billion, according to the National Venture Capital Association, a trade group. That’s not far off from the total for all of 2015, which was $28.2 billion. This year has already seen several mega funds, including $1.5 billion for Andreessen Horowitz and $1.2 billion for Norwest Venture Partners. Accel Partners, which raised $2 billion for U.S. investments this year, and Founders Fund, which brought in $1.3 billion, significantly exceeded the sizes of their last funds.
Fear isn’t the only factor. Groups that traditionally contribute the most to venture funds —foundations, private pension funds and university endowments, according to researcher Preqin—have more money to spread around. The size of U.S. university endowments totaled $529 billion last year, a 53 percent increase from five years earlier, according to data from the National Association of College and University Business Officers. The average endowment invests 5 percent of its assets in venture or more for larger endowments, said the trade group. When schools get richer, so do VCs.
Julie Vollenweider, managing director for private markets at Emory University in Atlanta, said she allocates about 18.5 percent of the full endowment, which was an estimated $6.68 billion last year, to VC and private equity. She recently wrote a check to Canvas Ventures, known for its early-stage technology investments in companies such as Houzz Inc. and LendingClub Corp. “That is where you have the opportunity to generate the highest returns,” Vollenweider said.
Canvas Ventures, based in Portola Valley, California, typically invests about $5 million to $10 million in each startup it backs, said Hsiao. The latest fund attracted about 30 investors, twice as many as last time.