First-time funds bounce back from pandemic lows

With the COVID-19 pandemic now entering its third year, people and institutions around the world have adapted to current circumstances, and the financial world has returned to a sense of normalcy.

For first-time fundraising, the good times are back. VC and PE fund activity has returned to pre-pandemic levels and in some cases set new records, according to PitchBook data.

Part of the challenge for up-and-coming money managers during the pandemic was logistical, as travel restrictions made it difficult to meet LPs in person. Another theory is that, faced with uncertainty, LPs stuck with the firms they knew, boosting the capital available to follow-on funds.

Now, first-time funds are benefiting from the broad growth in VC and PE fundraising that has been led by the largest firms. European VC funds registered a record amount of capital raised in 2021, and North American funds nearly equaled their 2018 record by raising $14.6 billion.

First-time PE fundraising proved to be more resilient than VC in 2020, holding steady as a proportion of PE fundraising overall. Come 2021, however, they took off.

In North America, these funds raised a record amount of capital in 2021 at $15.7 billion, while European first-time funds raised $7.6 billion during that time frame, the third-highest amount since 2012.

Since the start of the pandemic, San Francisco’s Paradigm One Fund was the largest North American VC fund to close, with $2.5 billion. Jeito I, based in Paris, was the largest European VC fund, raising $630 million.

Arctos Sports Partners Fund I, based in Dallas, was the largest North American PE fund that closed during the pandemic, raising $3 billion. Liberty Strategic Capital Fund, based in Tel Aviv, was the largest European PE fund, with $2.5 billion.

Despite growth in total capital raised, the number of first-time funds has declined across asset classes and geographies. Those divergent trends point to a third phenomenon: First-time funds are getting larger.

In North America, the median and average VC fund sizes were 40.7% and 61.7% higher in 2021 than they were in 2020, respectively, more in line with recent pre-pandemic years. The European median and average VC fund sizes reached record highs in 2021 after a dismal 2020, growing by 115% and 90%, respectively, year-over-year.

For PE, median fund size in North America in 2021 was the highest recorded in the last 10 years, following the dip in 2020. European PE funds experienced the same trend, rebounding significantly in 2021 following a decline the previous year.