Venture capital firms enjoyed a windfall in 2021 and 2022, with assets under management swelling 58% from $2.4 trillion to $3.8 trillion. But one of the principal drivers of that growth, fundraising, isn’t projected to recover to recent highs until well after 2028, according to a recent PitchBook analyst note.
VC firms are forecast to raise less than $200 billion in 2024, a 48% decline from 2021 levels. Fundraising is only expected to grow 2.9% annually through 2028, less than half the rate of other private capital strategies including private equity, private debt and real assets funds.
The poor outlook for fundraising could be a significant drag on assets under management by VC firms. If valuations fail to recover, the bad-case scenario is that VC AUM will flatline over the next five years.
The projections cast cold water on hopes that VC might enjoy a V-shaped recovery from its recent declines. VC fund performance stood at -4.7% for 2023 according to the most recent data, which includes returns through Q3 and preliminary performance for Q4.
A rebound in the performance and price multiples of young tech companies could drastically change the picture for future AUM. In the analyst note’s base-case scenario, VC AUM will grow to $4.6 trillion through 2028. Under favorable conditions, AUM could swell to $5.6 trillion during the period.
Despite a handful of well-received tech listings—such as Astera Labs and Rubrik—the exit environment for startups remains dismal. A decline in IPOs has throttled cash distributions to LPs and led to mediocre fund performance.
Despite these conditions, some VCs continue to raise billion-dollar vehicles. Leaders like Andreessen Horowitz and General Catalyst, for example, have taken in an outsized share of the industry’s capital this year. Emerging managers, on the other hand, are struggling to win over LPs despite a case to be made that they provide higher upside potential.
Read the note: Private Capital’s Path to $20 Trillion
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