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Funds Flow to Venture Firms
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By offering the prospect of higher returns in a low return environment venture capital firms are raising new funds at the highest rate in 15 years in 2016. Venture Capital firms have raised about $13 billion in the first quarter of 2016 from pension funds, endowment funds, and other sources, with about 50% of the funds going to about 7% of the total number of firms, according to Venture Source- including $2 billion to Accel Partners, other firms are Andreeson, Founders Fund, Kleiner Perkins. The returns for ten years from venture capital are about 11% compared to 6.8% for S&P 500 index, according to Cambridge Associates. Usually the fund capital raising lags behind market downturns. Much of the returns for some of the startups are not reflected in cash inflows with returns being large on paper, and startup financing has increased for firms, resulting in capital shortages and more fund raising in the industry.
Venture Capital firms fund raising in 2016
03/30/2016
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Fidelity, T. Rowe Price mutual funds and banks such as JP Morgan, hedge funds Tiger Capital Management, join the venture capital funds with increased funding for startups. Dilution is not considered a problem as the increased valuation lets these private investors markup the value of the stock on their books. Time for startups remaining private has gone up to 10 years as startups delay IPO's at times when the market is cooling as in April 2014. Startups such as Quorora with products still not out are collecting additional funds to buy time for development. Analysts fear this aspect of being flush with funding reduces discipline, as with Fab which had to retrench after overambitious plans. In most cases providers of funds are chasing aggressive returns with fewer alternatives, similar to the way the Greek bond offering for 3 billion euros was oversubscribed to about 20 billion euros in April 2014.
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