Alt Investments
VC Funds Become More Common; Returns Shine - Study

The venture capital sector is still dominated by institutional investors, although family offices, among other parts of the wealth management segment, are becoming more involved.
The number of venture capital funds operating in the market has
surged by almost 40 per cent between now and the start of 2021,
with aggregate money-raising also having increased, figures from
research firm Preqin
show.
With curators of “patient capital” such as family offices
increasingly holding VC investments, the data shows that the pool
of available funds is growing, arguably boosted by the easing of
lockdowns earlier in the year.
Although Q3 2021 fundraising wasn’t as brisk as earlier quarters
of 2021, aggregate capital raised ($29 billion) still surpassed
the $27 billion raised in Q3 2019, before the pandemic. The
bright spot for the asset class is North America, where 199 funds
closed with $17 billion, the data showed.
“Venture capital continues to make its mark, with record growth
and performance lately. That said, fundraising and exits declined
in Q3, perhaps a sign of the VC market overheating amid what some
see as excessively high valuations,” Jared Bochner, senior
associate, research insights at Preqin, said. “With a current AuM
of $1.683 trillion, though, we still expect even more money to
flow to VC funds and for competition for deals to be fierce.”
With investors willing to tolerate the illiquidity of many VC
areas because of a need for yield in a low-rate world, the sector
has gained ground. A few days ago, a
report from the US, taken from 139 ultra-high net worth
families and family offices, found that in the first half of
2021, FO-backed venture deals accounted for 4.2 per cent of the
total. That figure was up from 3.9 per cent in 2020 and 2019.
The total value of VC deals hit a record high in Q3 2021 at $172
billion. Despite record deal-making, the number and aggregate
value of exits fell, however, in part because there were fewer
IPOs for venture-backed companies. Nevertheless, performance was
stronger: the lowest quartile of VC funds surpassed 10 per cent
of internal rates of return, while top-quartile funds reached 42
per cent net IRR, exceeding private equity’s top-quartile fund
IRR of 34 per cent.