Will most existing venture funds be able to raise their next fund?

Sam Lessin · Aug 11, 2023

There is a real and material LP pullback — funds are cutting fund sizes, combining vehicles to bulk them up, and failing to raise vertical funds.

Recent reporting shows managers dramatically cutting or underfunding funds and merging them because they can't raise the separate vehicles.

Scope: top firms like Andreessen will still raise, but at lower scale

46:31 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Beezer Clarkson · Oct 18, 2023

Breakage between fund one and fund two averages roughly 50%, which is shockingly high

Their data going back to 1995 shows it; the law of large numbers applies at fund one because there are so many small funds

Scope: an average — varies year to year

42:06 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Oren Zeev · Feb 2, 2026

At least 50% of funds today either cannot raise or are unsure they can, and many will not be able to raise

Less money is going to venture overall and a larger share of it is going to the platform firms, so non-platforms are squeezed; some are stalling to avoid testing the market

Scope: maybe more than 50%

33:03 20VC: 50% of Funds Will Go Out of Business | Why Growth Expectations Today are BS and Will Not Last | Why Oren Zeev Takes $0 Management Fees But 30% Carry | Why GPs Should Not Tell LPs Their Strategy

Mo Koyfman · Aug 8, 2022 · hedged

Many investors and firms will disappear in this cycle and capital flowing into startups will shrink, though not back to pre-cycle levels

The same reckoning happened around 2008 — Spark and USV made their names coming out of that crisis — and late-stage and crossover investors are already pulling back; capital plateaus at higher levels rather than fully reverting

Scope: over the next few years; capital will keep coming to tech long term

44:12 20VC: Investing Lessons from Fred Wilson and Why Small Funds Outperform Large Funds | Why the Secret to Winning in Venture is Splitting Deals |Learnings From the Biggest Hits and Biggest Losses | Why Anyone That Always Does Their Pro-Rata is Wrong with Mo

Shu Nyatta · Jul 31, 2023

The venture excesses are behind us — fund size targets are being missed by wide margins — though the tail will be long because funds have long lives

Public news of funds closing as much as 90% below target shows the shift is real

Scope: concedes funds have long lives and a long tail

53:41 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

Beezer Clarkson · Oct 18, 2023

A prolonged absence of liquidity will force continued belt-tightening and a winnowing out of fund managers, as happened after 2000

Post-2000 it took about three years to correct, with far less money committed to funds during that period

12:16 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Harry Stebbings · Aug 9, 2023

The winners in venture will be mid-sized funds of roughly $250m-$750m, with massive LP churn at the $2bn+ mega-fund level and consolidation away from sub-$100m emerging managers who lack DPI

LPs realise the amount you must return to make mega-fund economics work is near impossible, while mid-sized funds are small enough to still deliver real upside

58:35 20VC: The Memo: The State of the VC Market: Why Seed Funds Can't Invest in "Hot Startups" Anymore, Why Series A & B is Terrible, Why the IPO Market Will Explode in 2024 & Why VC DD is BS & Every VC Has More Fraud in their Portfolio with Jason Lemkin

Harry Stebbings · Oct 18, 2023

LP capital is concentrating in the $300-700M fund range, moving away from both billion-dollar-plus funds and sub-$100M funds

Billion-dollar funds are very hard to produce good numbers on, while sub-$100M funds take a lot of underwriting work with little data, no DPI and no established brand — and an allocator can get fired if a recommit turns out to be a dud

17:35 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Chris Paik · May 8, 2023

Not all of the multibillion-dollar funds raised in recent years will survive; they will be lost to the sands of time, though unwinding will take a decade or more.

Scope: will take a decade plus to play out

58:48 20VC: Why VC Subsidizes the Wrong Type of Business, Why Capital Gains Tax is Crazy, The Biggest Misalignments Between VCs, Founders and LPs, Why Business Model - Product Fit is as Important as Product-Market-Fit with Chris Paik @ Pace Capital

Nico Wittenborn · May 22, 2023

The next few years will be difficult for most venture firms, fund sizes will come down and people will leave the large firms

The big funds have become too big, and carry in a $3bn fund isn't worth much today

Scope: hard to make a blanket statement; depends on the firm

42:41 20VC: Why Your Fund Model Should Not Rely on $10BN+ Outcomes, Why the Large Funds Got Too Large, The Rise of Solo GP's; The Pros and Cons & Is Consumer Subscription Even a Good Sector to Invest in with Nico Wittenborn @ Adjacent

Harry Stebbings · Jul 31, 2023

Venture is a very difficult business to die in — long fund lives, opacity and lazy, relationship-driven LP deployment mean underperforming funds will keep going

LPs have been with managers for years, they're nice people who host a good AGM, and the business is generally opaque

52:36 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

Jason Lemkin · Aug 11, 2023

VCs face little consequence for their 2021 vintages — LPs are effectively allowing everyone one bad fund and VCs can just raise another.

Scope: stated somewhat wryly

46:17 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Semil Shah · Nov 21, 2022 · hedged

The funds that thrive will be those in the $1B–$4B range that can pair early access and early ownership with enough firepower to put real money behind winners

You need both the magic of meeting entrepreneurs early and the capital to follow on meaningfully

39:15 1b 4b funds pairing early access with follow on firepower will thrive

Harry Stebbings · Nov 21, 2022

The winners in venture will be the 'Chanels' (boutique, highly specific products for a defined customer) and the 'Walmarts' (Sequoia, Andreessen, Tiger with near-infinite capital across the lifecycle); the real pain sits with $700M–$1.5B funds with weak or middle-tier brands, many partners and bloated decision making

Boutiques win on specificity of product and identity; the mega-funds win on walls of cash and full-lifecycle coverage; the middle has neither

39:58 Barbell of boutique specialists and mega generalists wins while 700m 1 5b middle tier struggles

Jason Lemkin · Aug 23, 2023

Mega funds will make a resurgence in late 2024 and 2025 rather than permanently shrinking

LP pullback is a short-term, backward-looking phenomenon; you're either in the venture asset class or you're not, and when times are good money floods back in

0:00 Mega funds will rebound in late 2024 2025 as lp pullback was temporary

Harry Stebbings · Sep 12, 2022

It takes a long time for mediocre venture firms to die because they raise new funds on lagging marks from IPOs of companies invested in eight years earlier

Lagging performance data lets the middle keep raising capital

24:00 Mediocre firms persist because lagging eight year old ipo marks mask current underperformance

Logan Bartlett · Aug 29, 2022

The crossover funds most at risk are those that scaled aggressively into venture over the last two years without a long track record of outsized returns attached to their existing firm

Firms that spun out or scaled well beyond their prior five-year size raised from a whole new set of LPs without a demonstrated decade-long record, so they face a reckoning

45:53 Crossover funds that scaled without a decade long track record face the greatest reckoning

Harry Stebbings · Oct 18, 2023 · hedged

The number of managers coming back to market has dropped significantly, which likely explains the reduction in LP dollars deployed

There's a huge withdrawal in net new manager raising

8:10 Sharp drop in managers returning to market explains reduced lp dollar deployment

Harry Stebbings · Oct 18, 2023

Many LPs are declining fund twos for GPs they backed exuberantly in the boom that they would normally have re-upped in

15:42 Lps decline fund twos for gps backed exuberantly during the boom

Harry Stebbings · Oct 18, 2023

Fund-one-to-fund-two breakage happens because small funds' LPs are often individuals who don't scale into institutional commitments

42:20 Fund one lp base of individuals explains high fund two breakage

Beezer Clarkson · Oct 18, 2023

Fund-one-to-fund-four graduation averages only about 17%, and significant breakage continues even past fund four as performance becomes visible

Individuals don't always realize a personal commitment every two or three years is expensive, and sometimes the GP themselves doesn't want to continue; playing it out to fund eight the numbers are terrible because of the large early breakage

42:26 Fund one to fund four graduation rate is only about seventeen percent

Auren Hoffman · Nov 3, 2023

VCs with subpar returns will no longer be able to keep raising third through seventh funds; LPs will be far more discerning and will switch to better managers after at most one more fund

Many underperforming managers were previously able to keep raising, and that permissiveness is ending

26:54 Lps will stop tolerating repeat underperformance and switch managers after one more fund

Frank Rotman · Aug 11, 2023

LPs are consolidating and mid-tier firms with good-but-not-great results will struggle to raise for a number of years.

From talking to ~150 LPs in a recent fundraise, they are making strategic choices about renewals and cutting emerging managers; many funds are also staying away from market because their track records are depressed by markdowns, which is why the pullback isn't yet visible.

47:35 Mid tier firms with good not great track records will struggle to raise for years

Jamin Ball · Jan 10, 2024

The assumption that top-brand funds can always raise their next fund is the untested part of the cycle and is where the rubber will meet the road

We have not yet reached the stage of the cycle where fund-level fundraising breaks

22:09 Top brand funds ability to always raise again is untested

Harry Stebbings · Jan 10, 2024

Top-brand mega funds will not face a fundraising reckoning; only a few weak funds will

At scale they raise from pension funds and sovereigns who target ~7% net returns and are happy with a pitch of 10-11%, and a booming Nasdaq improves their public marks enough to offset deterioration in private performance

22:28 Top brand mega funds are safe only weak funds face a reckoning

Harry Stebbings · Jan 13, 2023

Many micro funds will die

Their LP bases — founders whose public-market net worth has been crushed, and GPs like himself and Jason who are writing fewer LP checks than before

35:35 Micro funds will die as their founder and gp lp base dries up

Jason Lemkin · Jan 13, 2023

A GP who has been investing more than six or seven years and did not produce multiple billion-dollar cash exits by 2021 never will, and their LPs should quit on them

2021 was the most accelerated exit environment there will be, so failing to convert then is dispositive; he found the Twitter version of this 'painfully true'

40:38 Gps without billion dollar exits by the 2021 peak window never will lps should drop them

Marcelo Claure · Jul 31, 2023

Over the next ten years only the few funds that genuinely create value will be able to raise money, because LPs are going direct to founders and the best companies can skip intermediaries

Sources of capital are getting smarter at an accelerated pace and now show up directly at conferences courting founders rather than GPs; the best companies know they can bypass intermediaries

52:54 Only value creating funds survive as lps and founders bypass intermediaries