Venture Fund-Raising Hits 21-Year Low

Still hurting from the dot-com massacre, shellshocked venture capitalists in 2002 curtailed their fund-raising for future investments to a 21-year low, new data show.

Though 108 venture capital funds raised a total of $6.9 billion during 2002, 26 other funds refunded $5 billion to investors, according to data reported Monday by Thomson Venture Economics for the National Venture Capital Assn.

The net fund-raising total of $1.9 billion represented the smallest influx of venture capital since 1981, when $1.6 billion flowed into the industry.

The latest figures provided another sobering reminder of how far venture capitalists have fallen in just a few years.

As investors hungrily poured money into Internet start-ups promising to change the world, venture capitalists feasted on huge returns and busily set the table for even more riches.

In 2000, venture capitalists raised $106.8 billion from their limited partners, consisting primarily of institutional investors such as pension funds.

Now, the high-tech bust of the last 2 1/2 years has cast a pall over a venture capital industry trying to cope with an unprecedented streak of losses.

“We are really at a standstill,” said Martin Pichinson, chief executive of Sherwood Partners, a firm that helps venture capitalists save struggling start-ups. “I don’t think you are going to see much money coming into the industry for three or four years.”

With such dim prospects, venture capitalists have had little reason to raise money, particularly because the industry is sitting on an estimated $80 billion in funds left over from the boom days.

Meanwhile, wary institutional investors are less inclined to invest in venture capital funds. In some cases, investors are demanding refunds, prompting the venture industry to return about 73 cents for every dollar raised in 2002.

By some estimates, more than 10,000 start-ups launched during the dot-com bubble still are in business. Many of those will fail during the next few years as capital runs out, raising the specter of more losses for venture investors.

“We haven’t even seen the devil’s eye yet,” Pichinson said.