Across the board, institutional investors are reacting to an increasingly obvious downturn in the venture capital market. Returns are plunging. Firms that raised funds in 1998 and 1999, and then rapidly deployed the money in e-commerce companies at high valuations, are facing especially bleak results. The collapse of the dot-com sector is going to cause a fair amount of grief. Indeed, the fund-raising market has tightened significantly.
Many institutional investors are above their target allocations to private equity.
HarbourVest has the capacity to commit more, says D. Brooks Zug, senior managing director, but the firm doesn t expect many of the top firms it seeks to back to be in the market this year. Firms that took hits but treated investors well over numerous prior partnerships will get their funds raised. However, they may find fund-raising a longer, more humbling experience. Young firms with heavy exposure to e-commerce may fall short of their targets. Some, no doubt, will be forced to cancel their funds outright.