Venture Capital fundraising slowest since 1993

Just two weeks after the venture capital community cheered the strong exit opportunities during the first quarter, investors are faced with a very slow start to the fundraising year.

The National Venture Capital Association, the Arlington-based trade group, said today that the first quarter's fundraising numbers are the most dismal since 1993.

During the first quarter, only 32 venture capital funds raised $3.6 billion, compared to 140 funds raising $15.8 billion in the first quarter of 2009.

While the first quarter "showed some promising signs in terms of exit activity, the IPO market has a long way to go before volumes pick up in a big way," said NVCA president Mark Heesen. "Without being able to demonstrate strong exits and distribute cash back to (limited partners), many firms will remain in the waiting game."

Heesen suggests there may be a "mild upswing" in the second half of the year, but he doesn't expect fundraising to top $20 billion.

In the still-shaky economic environment, institutional investors remain shy to put their money into venture capital funds, which are considered more risky than other investments. That means venture capital firms have less money to invest in promising young start-ups.

The largest new fund reporting commitments in the first quarter is Boston-based Longwood Founders Fund, which raised $50.7 million.

The largest funds raised were Battery Ventures (based in Boston and Silicon Valley) and Oak Investment Partners (with offices in Connecticut, Minneapolis and Palo Alto, Calif.), which both raised $750 million during the quarter.