Venture capital firms booming in Mass.

Amount raised locally triples; but nationally, the total declines

Massachusetts venture capital firms reaped a huge bounty of new money in 2013 as investors regained a level of confidence in the tech sector not seen since before the dotcom collapse.

Firms in Massachusetts raised $5.4 billion for new investments, more than triple the amount raised in 2012, according to numbers released Monday from Thomson Reuters and the National Venture Capital Association. In total, Massachusetts firms raised about one-third of all venture funding last year.

And as is increasingly becoming the rule in venture capital, the big money went to the big firms.

Battery Ventures, for instance, raised a total of $900 million last year, and Greylock Partners, a firm based in Silicon Valley but with a significant local presence, raised the largest amount for a fund last year, at $1 billion.

The level of fund-raising was aided by the excitement over the increased numbers of initial public offerings for technology and biotech companies, as many venture-backed enterprises that had been waiting in the wings to go public took advantage of a more receptive market. For example, Boston’s Spark Capital was a big investor in Twitter Inc., which went public in 2013 and raised $1.8 billion.

The IPO success was especially prominent in life sciences, as 10 Massachusetts biotech firms went public last year.

“We are seeing a coming of age for a lot of the investment that we made,” said Kevin Starr, a partner with the Cambridge venture capital firm Third Rock Ventures, which specializes in biotech investments. Third Rock had three of its portfolio companies go public last year, and also raised $516 million for a fund for new investments.

The past year, Starr said, “was a bit of a renaissance for the life sciences industry.”

The stock-market success of those companies is boosting interest among venture firms to invest in younger biotechs, said Starr.

But as Massachusetts firms saw major windfalls this year, money-raising by venture capital funds elsewhere was off, markedly. Nationally, venture firms raised $16.7 billion in 2013, compared with $19.5 billion the previous year, in the slowest fund-raising period since 2010, according to Thomson Reuters.

The decline nationally suggests that the venture industry is consolidating, and increasingly dominated by fewer firms with marquee names that are raising the bulk of the capital, said Bobby Franklin, president of the National Venture Capital Association.

Neeraj Agrawal, general partner of Boston’s Battery Ventures, predicted that the consolidation in the venture market will continue. The investors who provide the bulk of venture funding, he said, are looking to work with fewer firms.

“They’ve decided to concentrate their relationships with a small amount of managers,” said Agrawal. As a result, the venture world is splitting into this world of “haves and have nots,” he said.

Even though many Massachusetts firms topped the list of 2013 funds, venture capital money-raising is cyclical in nature and fund totals can vary widely from year to year.

“The difference today is that there is hard evidence of an improving exit market,” said Franklin of the National Venture Capital Association. “If the IPO market continues to strengthen and receive quality offerings, we can expect more VCs involved in those exits to raise money in 2014.”

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Correction: Due to a reporting error, an earlier version of this story misquoted Kevin Starr of Third Rock Ventures. He said 2013 was a renaissance for the life sciences industry.