Venrock, one of oldest and best known venture capital firms in Silicon Valley, has raised $350 million for its newest, sixth fund -- almost half the amount of its previous $600 million fund raised in 2007. The news highlights a trend in the technology venture capital community: shrinking funds and shrinking deals.
The shift started taking hold earlier this year, with 32 firms raising $3.6 billion in the first quarter of 2010, down from $5.3 billion for 57 firms in the first quarter of 2009, according to the National Venture Capital Association.
Known for its early investments in Intel and Apple, Venrock hasn't faced a major liquidity problem. The economy took a dive after its fifth fund was in place, and it's seen some fairly lucrative exits since with the IPOs of Alimera Sciences, Ironwood Pharmaceuticals, and AVEO Pharmaceuticals and the $300 million acquisition of PGP by Symantec. So the fact that the firm has lowered its sights is significant.
Not that the smaller fund is necessarily an indication of poor interest in the fund. Venrock, along with many of its peers, may be raising less money, it's also shifting focus to smaller, early-stage deals. The firm hopes that this newest fund will help it diversify its interests in health care and energy.
It's target all along was $350 million, and it said it had no problem hitting it while also reducing the number of partners sinking money into the fund from 15 to eight. Venrock says it did this purposefully -- actually rebuffing several interested parties -- even though many funds report having a hard time finding enough institutional and limited partners.
Smaller funds are looking advantageous for several other reasons. During the economic meltdown, a lot of the older, larger funds were left pumping millions into startups that didn't need the cash, lowering their possible returns. Venrock's new approach is designed to avoid this fate.
Aiding in this pursuit is the fact that a lot of its areas of investment are a lot less expensive to back today than they were several years ago. Cloud computing has slashed the amount needed by software startups to get up and running, new technologies have emerged expediting medical drug and device development, and new capital-efficient IT opportunities are emerging in the energy sector every day.
Founded in 1969 as a venture branch for the Rockefeller family, Venrock currently has $2.2 billion under management. It also has offices in New York, Israel and Cambridge, Mass.