Fundraising by Venture Capital (VC) firms hit its lowest levels since 2003 during the third quarter of 2009 as the global economy is struggling to recover from the fallout of last year's financial turmoil.

According to data released yesterday by Thomson Reuters and National Venture Capital Association (NVCA), VC fundraising activity registered second consecutive quarterly decline in the third quarter.

Just 17 VC funds raised $1.56 billion, representing the lowest amount committed since the first quarter of 2003 when $938 million was raised. It corresponds to the smallest number of venture funds raising money in a single quarter in 15 years, since the third quarter of 1994 when also 17 funds raised VC.

VC is a type of private equity capital typically provided for early-stage, high-potential, growth companies in sectors such as information and communication technology and biotechnology. VC is distinguished from typical buy out private equity by its role in managing the companies as well as providing capital, aiming for higher rate of returns.

NVCA president Mark Heesen said: ''Anecdotally, we are hearing that fundraising activity is accelerating as more firms that were waiting for economic recovery are beginning to formally seek commitments. The reality, however, is that many limited partners are still determining their long-term strategies in wake of the past year's financial crisis, and that slows the process down considerably.''

Heesen expects that commitment levels would remain modest through the end of the year, with some gradual increases beginning next year.

According to NVCA, 4 of the 17 funds which were raised in the third quarter of 2009 and representing around 25 per cent, were new funds, whereas the remaining 13 funds were follow-on funds. A new fund is the first fund at a newly established firm, although the general partner of that firm may have previous experience in investing in VC.

The largest new fund in the third quarter was Andreessen Horowitz Fund I, LP, which raised $58.5 million, while the largest follow-on fund was Khosla Ventures III, which raised $750 million, followed by Draper Fisher Juvetson X, LP, which gathered $196 million.

According to data released by Thomson Reuters and NCVA last week, there were three venture-backed IPO's in Q3, a slight decline from the second quarter of 2009, bringing the total for the year to eight, with an average IPO amount of around $191 million. However, the third quarter saw the largest venture backed IPO offering since March 2007, of $380 million raised by Massachusetts-based battery manufacturer, A123 Systems.

Venture-backed M&A deals in the third quarter were 62 totaling $1.2 billion led by the IT space, with average disclosed value falling back to the first quarter levels.

Virginia- based National Venture Capital Association (NCVA) comprises more than 450 venture capital firms. NCVA's mission is to foster greater understanding of the importance of venture capital to the US economy and support entrepreneurial activity and innovation. A study by Global Insight indicates revenue of $2.9 trillion and jobs of 12.1 million in the US in 2008.

Thomson Reuters is the world's leading source of intelligent information for businesses and professionals.

VC fundraising hit the peak of $36.1 billion in 2007 which dropped to $28.6 billion in 2008, and a mere $8.4 billion during the first three quarters of 2009.

Table: Fundraising by venture funds

Year/Quarter	No. of Funds	VC ($ billion)
2004	218	19.15
2005	242	28.96
2006	242	31.92
2007	251	36.06
2008	224	28.60
2009	87	8.37
1Q'09		4.81
2Q'09		1.96
3Q'09		1.56