MA Venture Firms Lead the Way in Slow Q1 Fundraising

Three Boston-area venture capital firms led the nation in VC fundraising during the first quarter of this year, a slow period that reflects continued retraction and consolidation in the venture industry.

In their latest quarterly report on VC fundraising, Thomson Reuters and the National Venture Capital Association say that some 35 venture funds raised nearly $4.1 billion combined during the quarter. That’s the smallest number of funds raised in any one quarter since the third quarter of 2003, and a decline in dollar value from about $4.7 billion raised by 53 firms in the first quarter of 2012.

Put another way: The sharp drop in the number of funds, next to the smaller decline in dollars raised, shows once again how the VC industry is contracting. The top five venture firms raising money in the first quarter represented some 57 percent of all VC fundraising in the quarter, the report says.

“The lack of a strong exit market is keeping many funds that would like to be raising money away from investors until they can demonstrate a track record,” says John Taylor, head researcher for the NVCA. “We should be prepared for fewer funds in 2013, which will ultimately decrease investment levels from traditional firms.”

With those trends as the backdrop, Massachusetts VCs can take some solace that they captured three of the top five spots across the country in the first quarter.

Leading the way was the $650 million 10th fund from Battery Ventures, which followed 2012 IPOs from portfolio companies including Splunk, Guidewire, and ExactTarget. It should also be noted that Battery simultaneously raised another $250 million for a secondary fund, which will focus on larger growth investing and buyouts. Boston-based Battery, which also has offices in the San Francisco Bay Area and Israel, raised the big fund despite fund performance over the past decade that really wasn’t anything to write home about.

Coming in second was Third Rock Ventures, a biotech firm that raised $516 million intended to finance perhaps 16 new companies. Third Rock, which is based in Boston and San Francisco, is among a small group of active early stage biotech investors—although life sciences VC Standish Fleming noted in a guest column that Third Rock’s strategy is still too new to be a proven winner.

Third place went to Spark Capital, which raised its $450 million fourth fund in February. Spark was founded in 2005, and like Third Rock still has some time left to prove its strategy will pay off for limited partners who invest in the VC world. But Spark has certainly attracted attention with its investments in big-name private tech companies like Twitter, Tumblr, and Foursquare.

The rest of the top-raising VC firms in the quarter weren’t named in the Reuters/NVCA report.

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