Venture fundraising down 5.5% in the third quarter

Venture capitalists raised 5.5% less money from institutional investors in the third quarter than they did in the same period last year, the National Venture Capital Assn. said Monday.

Investors including pension funds and endowments put $8.12 billion into funds that invest in start-up companies, compared with $8.6 billion a year earlier. The number of new venture funds fell by 29% to 55, the Arlington, Va.- based trade group said.

Most of the decline came before the Sept. 15 bankruptcy filing of Lehman Bros. Holdings Inc. froze credit markets and sent stocks tumbling. The Standard & Poor’s 500 index fell 28% since Lehman’s filing through last week. The association said fundraising weakened as fewer venture firms sought investments. Venture firms raised $36.1 billion last year, up from $28.6 billion in 2005.

“The impact of the bubble is still working itself through the system,” said Emily Mendell, a spokeswoman for the venture capital association.

The economic crisis probably will hurt venture funds started as long ago as 2000, many of which are trying to sell the remaining start-ups they invested in, she said.

“The top firms with a proven track record will still be able to raise money,” Mendell said. “There will probably be a weeding-out process over the next two years.”