Edward Conard

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Upside of Inequality Oxford Unintended Consequences

AI Summary. Venture capital fundraising has slowed sharply, from $555bn at its peak to about a third of that the following year, leaving venture investors on course for their worst fundraising year since 2015. Firms holding large pre-downturn funds have been reluctant to back start-ups whose valuations were hit by higher interest rates.

George Hammond Financial Times
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Last year global venture capital funds raised one-third of 2021’s record total of $555B. Funds are increasingly using their dry powder to support existing investments as opposed to making new investments.

Has venture capital fundraising slowed sharply since its peak?

Core argument: Venture capital firms raised roughly a third of their 2021 haul of $555bn last year, and continued slowing puts them on course for their worst fundraising year since 2015.

Fundraising activity has slowed sharply since 2021, when VCs hauled in $555bn. Last year, they raised a third of that total, and activity has continued to slow, putting venture investors on course for their worst fundraising year since 2015. In the US, just $9.3bn in capital was raised in the first three months of this year, roughly a tenth of the total raised in 2023. VCs that raised large funds before the market turned still have billions of dollars of “dry powder”, but have been reluctant to invest in start-ups whose valuations have been rocked by higher rates. Increasingly, they are focused on helping companies already in their portfolios towards exits which would then allow VCs to return capital to their own limited partners.

Takeaways by Macro Roundup® AI

  1. Venture capital firms raised roughly a third of their 2021 haul of $555bn last year, and continued slowing puts them on course for their worst fundraising year since 2015.
  2. US venture funds raised just $9.3bn in the first three months of this year, roughly a tenth of the total raised in 2023.
  3. Venture investors holding billions in "dry powder" from funds raised before the market turned have been reluctant to back start-ups whose valuations were rocked by higher rates, focusing instead on steering portfolio companies toward exits that return capital to limited partners.

Related Articles:

  • It’s Mostly a Paper Moon: Alternative Investments Review — Venture capital financing has tightened: the median time between funding rounds has lengthened, more startups have shut down through bankruptcy, and the share of "down rounds" — new financing at a lower valuation — rose from 8% to nearly 20%, with those rounds cutting post-money valuations by more than 50%.
  • High-Interest Rates Crushed Startup Investment. Here Is What Could Revive It — U.S. venture funding for startups peaked above $300bn—more than double the prior year—before a series of steep interest-rate increases, the fastest in four decades, curbed appetite for risky startup bets and pushed funding down for a second straight year to $167bn.
  • Data Update 3 for 2024: A Rule-breaking Year for Interest Rates — Central bank influence on interest rates is strongest at the shortest maturities and decays at longer ones, so long-term rates are better understood through the Fisher decomposition of a nominal rate into expected inflation plus an expected real rate. Assuming the expected real rate converges on real economic growth yields an "intrinsic risk-free rate" estimated as inflation plus real growth.
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