For newcomers seeking to raise venture capital, things are looking bleak.
While global VC fundraising is on track for its worst year since 2015, the pain isn’t being felt equally. Emerging managers, firms that PitchBook defines as having launched fewer than four funds, are facing their worst environment in 10 years, raising less capital than ever before, according to the latest PitchBook-NVCA Venture Monitor.
In the first half, VCs closed 632 funds to raise $80.5 billion, putting this year on track for fewer than 1,300 new vehicles, a far cry from the all-time high of 4,000 set in 2021.
But the industry’s best-known firms, while not immune to the broader struggles, are still raising large sums even as newcomers are iced out. When Countdown Capital, founded in 2020, announced it was closing down earlier this year, founder Jai Malik acidly observed, “The future of this space favors larger firms than mine.”
The potential consequences of a continued emerging managers pullback for the entire venture market could be far-reaching: greater competition between already cash-starved startups, regional schisms continuing to grow and an overall shrinkage of the VC ecosystem.
These three charts highlight the tough times newcomers and emerging managers are facing.
Emerging managers have captured only 23% of fund value year-to-date, a 10-year low as capital becomes more concentrated among experienced firms. In this difficult, more cautious environment of elevated interest rates and muted exits, LPs are prioritizing experience to an even greater degree.
First-time managers are facing an even bleaker picture as new funds struggle to raise capital. 2024 has marked a record low in first-time fundraising activity, as 56 vehicles had their debut and raised $3.7 billion. That figure doesn’t bode well for the future pipeline of funds, as PitchBook data suggests that only 63% of VC newcomers manage to raise a second fund despite posting returns that outperform established managers. PitchBook estimates that more than 247 first-time managers who raised funds between 2019 and 2021 will be unable to secure second-time financing.
Furthering the divide between established and emerging managers, the gap between fund size has continued to grow, with larger vehicles dominating. Funding distribution is largely being skewed to a small cohort of larger funds exceeding $400 and $500 million while the rest of the ecosystem struggles, with VCs’ median capital raised falling to $24.8 million, its lowest point since 2016.
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