TechPulse 360

Just 17 venture capital funds raised money in the recently completed third quarter. It was a pace slower than any quarter since 1994.

But there are signs of change ahead. “We are hearing that fundraising activity is accelerating as more firms that were waiting for economic recovery are beginning to formally seek commitments,” says National Venture Capital Association President Mark Heesen.

Heesen said he expects fundraising to remain at low levels for the rest of the year. But in 2010, increases will gradually show up.

The challenge for general partners is that many of the limited partners who fund venture firms are rethinking their long-term strategies in the wake of last year’s financial crisis, he said in a study of the third quarter results. The fundraising process has slowed down.

Ironically, given the slow investment environment, it probably doesn’t matter right now how much money VCs take in. It is not moving out the door at an accelerated pace.

However, long-term the industry will need to replenish its bank accounts. That’s when the question of money raising will become critical, especially given the financial demands of clean tech and biotech companies.

During the third quarter, VCs raised just $1.6 billion, down from $8.5 billion in last year’s third quarter.

There may be some signs of economic thawing in the United States and around the world. But it isn’t yet evident in venture capital fundraising.

General partners took it on the chin in the third quarter raising only $3.5 billion for new funds, down an astonishing 51 percent from a year ago when the economic clouds were darkening.

According to Dow Jones Private Equity Analyst, only 26 funds were able to attract money. VCs took in $7.2 billion in last year’s third quarter.

The weak fund raising environment could have long-term implications for the industry. Venture partnerships will have less money to invest in new companies and thus less opportunity to steer new technologies into big winners.

It is likely another indicator of a coming contraction among firms even as the pace of innovation goes roaring on, in both clean tech and traditional health care and high tech markets.

The third quarter pullback brings the industry back to 2003 fund raising levels. And the dip could have been much worse without a couple of unusually big funds pulling more than their weight.

Green tech investor Khosla Ventures closed a pair of funds totaling $1.06 billion and Matrix Partners sealed the deal on its ninth fund totaling $600 million.

Also of note, Andreessen Horowitz raised its first venture fund of $300 million. Separately, life sciences investor Domain Associates locked up its eighth fund, a $500 million instrument that fell short of its $700 million goal.