VC fundraising is expected to reach a decade low this year, even as the LPs that are investing show a greater appetite for emerging managers.
According to PitchBook data, only $22.2 billion has been raised this year by managers who have launched fewer than four funds. This puts 2025 on track to fall below last year’s levels, which already hit a decade low.
Although VC fundraising is a smaller pie, emerging managers are getting a bigger slice, accounting for 39% of commitments this year, versus 29% in 2024.
"[The market] is getting better,” said Gregor von dem Knesebeck, founding managing partner at Blue Future Partners, a Berlin-based VC fund-of-funds. “The uncertainties in the VC market [over] the last few years haven’t disappeared, but people are getting used to them. So many black-swan events have happened that we just have to accept them and move on.”
The post-2021 VC fundraising narrative, especially for emerging managers, has been one of retreat. The end of low interest rates and the drying up of exit markets have resulted in LPs either retreating from the asset class or turning to established brands, leading to a concentration of capital in the hands of a few.
New and nimble
According to von dem Knesebeck, while the market remains extremely challenging, LPs are adapting to the new normal and focusing on smaller firms for returns.
“When the [VC market] was really awful, everyone was rushing to established names to deploy capital and not seeking new relationships,” he said. “A lot of the larger VC firms have turned into asset managers, and they’re not going to be able to compete.”
Von dem Knesebeck believes that LPs are becoming more sophisticated about where outperformance comes from. They recognize that outsized returns are more likely to come from nimble, smaller managers willing to take early bets. The chances of a 5x return for a $50 million fund are much higher than for a $10 billion vehicle.
According to Chloe Dagnell, a principal who runs the new manager pipeline at London-based early-stage investor Isomer Capital, new technology has accelerated this recognition.
“We’re seeing green shoots largely driven by AI,” she said. “AI is really a driving force in technology at the moment, and LPs wanting to get exposure to this new category of companies can’t do so unless they are invested in VC.”
If you can get momentum by catching a killer deal early on, it enables LPs to build their conviction around what you can do
Dagnell noted that emerging managers are often closer to new technological innovations. Their alignment with builders, speed and willingness to go early and small gives them an edge in discovering the next big thing.
Another factor driving renewed LP interest, according to Dagnell, is the increase in solo GPs and micro-funds.
“We’re seeing an explosion in the number of solo GPs and micro-funds,” she said. “These smaller funds tend to follow rather than lead rounds and, therefore, can squeeze into rounds alongside more established funds.”
According to research from accelerator VC Lab, solo-led funds are the preferred method among emerging managers, with 60.3% of GPs between 2021 and 2024 choosing that route. They tend to be smaller and less intrusive on cap tables, allowing startups to have more GPs on board who will provide different types of support in the future.
Many solo GPs and micro-fund managers are former startup operators who not only benefit from the skills of building successful companies but also are deeply connected to their industries, offering a potential advantage in winning deals.
Momentum meets resistance
Yet even as LP interest improves, capital is still only trickling in for emerging managers. Dagnell says there is a “polarization of the market.” Spinouts from top-tier funds or GPs with stellar track records are raising funds much faster, but for most, times are still very tough.
According to Jonathan Hollis, a London-based managing partner at Mountside Ventures, competition for capital is only intensifying.
“It’s rare to meet an angel, or anyone involved in VC, who isn’t interested in launching a fund,” he said. “The appetite to become a VC has certainly increased, and the supply of emerging managers has also gone up. Unfortunately, demand hasn’t increased in line with supply.”
For those without a proven track record, raising may be almost insurmountable. LPs usually depend on past fund performance to underwrite risk, and without any data points, first-time managers, in particular, must convince allocators through narrative, deal-flow access and their unique perspectives. This means longer due diligence processes and a slower path to commitments, especially in a cautious environment.
The single greatest bottleneck for emerging managers is the lack of liquidity. There is not enough [LP] money to reinvest or make new investments, so everyone is praying for exits
Today, GPs differentiate themselves not by strategy but by their credentials, and some level of investing experience is vital.
To build credibility, some new managers opt for rolling closes—raising small amounts to initiate investments, while leaving the door open for future commitments. While this gives investors a portfolio to show prospective LPs, it has drawbacks.
"[It] can be positive, but on the other hand, you don’t know where your fund size will end up,” Dagnell said. “That makes portfolio construction trickier, but if you can get momentum by catching a killer deal early on, it enables LPs to build their conviction around what you can do.”
Liquidity constraints
However, according to Mountside Ventures’ Hollis, demonstrating a strong track record or a well-composed portfolio might not be enough in a market that has been hamstrung by a lack of capital flow in recent years.
“The greatest bottleneck for emerging managers is the lack of liquidity,” he said. “There is not enough [LP] money to reinvest or make new investments, so everyone is praying for exits.”
While nowhere near as active as at the 2021 peak, the exit market for VC-backed companies is showing signs of recovery. Globally, the count is projected to land below last year’s figures, but activity has significantly improved in some markets.
The US, for example, is on track to generate more exits than last year. High-profile IPOs from companies such as Figma, which popped 250% in its debut, and CoreWeave, currently trading well over 150% above its listing price, may inspire more to follow suit.
Once the exit market fully ramps up and distributions begin, LPs will be in a stronger position to recycle capital into VC funds. While fundraising remains challenging, the growing volume and momentum behind emerging managers point to a shift already underway.
“We’ve got a very long and exciting pipeline of emerging managers, and this area will only continue to grow,” Dagnell said. “Emerging managers are always at the forefront of technology innovations, and now that there’s been a big platform shift, there’s momentum in the market.”
Featured image by Jenna O’Malley/PitchBook News
Learn about our editorial standards.
