These are heady days for venture capitalists.
The $1 Billion Club
Six venture capital firms thus far this year have raised $1 billion or more each, a startling sign of how eager investors are to pour money into ventures that can turn into huge losses as much as they generate rich profits. The latest firm to join the $1 billion club is the Silicon Valley firm Greylock Partners, famous as an early investor in Facebook Inc. and LinkedIn Corp., which raised this amount in less than three months, according to The New York Times.
Other big venture capital raisers this year include $2.5 billion by Technology Crossover Ventures and $1.6 billion by Andreessen Horowitz.
These firms are benefiting from a trend in which investors are pouring money into venture capital at a pace not seen since the Dotcom boom that peaked around 2000-2001 before crashing. Through the first quarters of 2016, venture capital firms have raised $32.4 billion.
Where $1 Billion Funds Invest
In line with the PitchBook report's findings about where venture capital is flowing in the aggregate, indications are that the six new $1 billion funds favor the software and technology sectors. The specific areas mentioned by the managers of these funds include artificial intelligence and virtual reality (Greylock Partners and Andreessen Horowitz), robotics (Greylock), smartphones (Accel Partners), core enterprise infrastructure (Andreessen Horowitz), healthcare, consumer products and business and financial services (Norwest Venture Partners).
Industrywide, software firms are the leading recipients of venture capital funding, accounting for roughly half the money invested by these firms so far in 2016. In second place is life sciences, which includes pharmaceuticals, biotechnology and healthcare devices and supplies, according to PitchBook, published by the National Venture Capital Association.
Quality Not Quantity
As reported by The New York Times, there has been concern in the venture capital industry about whether the recent technology investment boom has run its course. Some high-priced startups have tumbled in value, and others have suffered through management issues and layoffs.
The PitchBook report indicates that venture capital firms have been making fewer, but larger investments. According to Conor Moore, the national co-lead partner of KPMG’s venture capital practice, this more targeted approach is a positive development. In the KPMG 2Q Venture Pulse report he writes, “The increase in dollars invested but reduction in the number of deals suggests a continuation of the ‘quality, not quantity’ investing strategy.”
Additionally, with the exception of Greylock Partners, all the new $1 billion funds mentioned above, which also include a fund managed by Sapphire Ventures, do not plan to invest in pure startups during their earliest phases. Instead, they will offer later rounds of funding to more established companies, in an effort to reduce risk.