New Enterprise Raises Record-Breaking $2.8 Billion Venture Fund

New Enterprise Associates Inc. has closed its $2.8 billion fund, the private equity firm’s 15th and the largest pure venture fund on record.

Firms like Warburg Pincus and Summit Partners have raised larger funds, though neither has restricted itself solely to venture capital deals. New Enterprise raised $2.6 billion in 2012 for its 14th fund, which was cited by the National Venture Capital Association as the largest venture capital investment arm until it was topped by the firm’s current fund.

While investors are publicly fretting over sky-high valuations for closely held technology companies, venture funds put $48.3 billion into U.S. startups in 2014, more than double that invested five years earlier, NVCA reported. Higher values make investments riskier and more expensive, but financial backers have been hungry to gain a share of late-stage startups like Uber Technologies Inc. and Pinterest Inc., as the companies stay off the public markets.

“I think the opportunity exists today to build really large companies in a way that hasn’t really been true for a while,” said Scott Sandell, who has been promoted to managing general partner at New Enterprise. “I think there will be some spectacularly successful outcomes and there will be some disappointments.”

Venture fundings of more than $500 million hit a six-year high in 2014, researcher CB Insights reported.

New Enterprise, based in Menlo Park, California, and Chevy Chase, Maryland, has backed technology and health-care companies at all stages of growth, including ride-sharing service Uber, web-services provider CloudFlare Inc., shopping site Gilt Groupe Inc. and MongoDB Inc., a maker of online database software.

Opportunity Fund

In addition to its 15th venture fund, New Enterprise said it had raised $350 million for an Opportunity Fund, which will enable the firm’s financial backers to double-down on funded companies.

Venture firms, including New Enterprise, have been reticent about over-exposing their investors to any particular company. The Opportunity Fund gives more aggressive limited partners, or LPs, a way to re-invest in promising companies without bypassing New Enterprise to put money directly into startups.

Cambridge Associates, an investment adviser, said U.S. venture capital had a 9.7 percent rate of return over 10 years, compared with 14 percent in private equity and 7.4 percent on the S&P 500. The amount raised by New Enterprise in its current fund signals that investors are optimistic about venture capital as an asset class, said Josh Lerner, an investment banking professor at Harvard Business School.

“It’s certainly indicative of the fact that venture, after being out of favor for many LPs’ portfolios for an extended period of time, has really returned back in favor,” Lerner said.

Before it's here, it's on the Bloomberg Terminal.