VCs planning to raise a new fund in 2025 have a much better shot if their long-horizon IRR is in the double digits, according to new findings in the Q1 2025 PitchBook-NVCA Venture Monitor.
Venture GPs that have raised a new fund since 2021 had an average 10-year IRR of 14.4%. Among the managers that haven’t raised a new fund, their average IRR was just 4.6% annualized over 10 years.
Annualized IRR—the internal rate of return, which measures the expected annualized return a fund will generate over its lifespan—is one of several key metrics LPs use to evaluate the success of a fund and its managers, along with TVPI and DPI.
In the first few years of a VC fund’s life, the IRR is typically negative as the firm charges fees before it starts seeing substantial markups in the fund’s holdings. But as those companies grow and their valuations tick up, it enters the black.
This makes IRR particularly meaningful in the later years of a fund as it includes realized returns from portfolio exits rather than just paper gains.
Many fund managers that last raised in 2021, amid the valuation euphoria, haven’t been notching the double-digit performance that LPs have come to expect lately.
The dim chances we’ll see a return of IPOs this year aren’t helping matters. LPs haven’t seen positive cash flow from venture in four years and public markets are down year-to-date, leaving many allocators overindexed in private funds.
Some emerging managers are departing the asset class entirely, and even some established firms have called it quits. Foundry Group, an 18-year-old firm with over $3 billion in AUM, decided last year it wouldn’t raise another fund.
Venture LPs’ ongoing “flight to quality” now seems to have an IRR requirement.
Featured image by Omega/Getty Images
Learn about our editorial standards.
