New Enterprise Associates has raised two venture funds totaling $3.15 billion in new capital. The firm, better known as NEA, has picked up just under $17 billion to date.
The new raise is similar in size to its most recent funds, but contains a separate vehicle: a $350 million fund, designed to grant NEA the ability to make later-stage investments without reducing the capital pool of its new, core $2.8 billion cash pool.
Call it a sign of the times twice over: As companies delay going public, the best firms are taking on increasingly large, late-stage capital rounds. NEA, presuming that it wants to maintain its percentage stake among its best investments (the firms that are delaying their IPOs) can use the smaller fund to avoid spending from its main account at those later valuations and check sizes.
If it did use general capital for those deals, the firm might reduce its ability to execute its normal investing strategy.
Secondly, it’s hard to find someone willing to argue that prices for private technology companies are inexpensive. Having additional capital for later deals grants NEA the flexibility to pay out a scoatch more than it might from its more traditional fund.
Where To Put 150 Million Twenties
Given the dollar scale of its funds, NEA has 25 investing partners on staff that deploy dollars across a number of verticals. I spoke to NEA’s Ravi Viswanathan about the firm’s investment strategy and the current macro trends of the technology market. He said that the firm intends to match its former investing model with its main fund. Of course, having the $350 million ‘opportunity fund’ makes that easier than it might have been.
Ravi also said that NEA and its supporting investors (LPs) might want to increase their percentage of an investment over time, something that the opportunity cash could be useful in executing.
Asking a venture capitalist if we are in a bubble as they announce a $3 billion capital raise is roughly akin to asking a parent if he or she loves their child’s artwork. But I did anyway. Ravi told me that things are mostly in line with reason, but that his firm discusses valuations weekly, and says no to things that they think are too expensive.
I also yammered with NEA’s Jon Sakoda, who made a similar point. Both venture capitalists were confident in their firm’s strategy even in these heated times. Their gist was simply that if you invest in things that are worth the damn money, you don’t have to time the markets.
The other side of that particular bit of circular silver is that if you hang with a cadre of money peeps they will say the same thing, which, to be fair, these two did not say, but remains true: If I could time the markets, I would work for a hedge fund.
Keeping The Magic Alive
Moving from NEA specifically, we’re seeing other funds also pick up more capital than they did in previous raises. On the micro end of this macro trend, Freestyle Capital recently added a third partner and increased the size of its third fund. Other firms are making similar moves.
I consistently hear that venture groups raising capital are oversubscribed. That directly implies that the firehose of cash fueling the venture capital and technology markets has yet to abate in any meaningful sense, if at all. The music is still playing, and at a furious pace.
But with interest rates at zero and NASDAQ 5,000 back in our norm, who can be surprised? Regardless of how the technology industry apportions the risk created by that level of spend, we can feel secure in the fact that the same risk is concentrated in the private sector. This helps to protect the average person from investing in something more ephemeral than a Snapchat ad. So if it all goes to hell, it’s mostly the rich kids who will take it in the gut.
Viva la tech.