Why 2023 Venture Fundraising Tracking To Be Far Lower Than 2022

Markets are stagnant to down, venture-backed startup exit opportunities are limited and risks are higher. 

All of those conditions have combined to depress venture fundraising this year, which, if current trends continue - and despite the boom in generative AI -  will be a fraction of 2022. JL 

Yuliya Chernova reports in the Wall Street Journal:

Just 99 U.S. venture funds raised a total of $11.7 billion in the three months of the year. That sets fundraising for the year on track to be a fraction of last year. In 2022, 892 venture funds raised $170.8 billion. Sentiment on venture appears to have soured given the anemic exit environment and the fall of Silicon Valley Bank. Limited partners are reducing their allocations to venture. Emerging firms that have raised fewer than four funds, raised just 14% of the total capital in the first quarter, with the rest going to more experienced fund managers. “With LPs, we see a flight to perceived quality which means more re-ups with larger, established firms.”

There was some delay with venture fundraising data, which appeared strong last year despite a weakening venture market. Well, first-quarter numbers caught up with reality.

Just 99 U.S. venture funds raised a total of $11.7 billion in the three months of the year, according to the PitchBook-NVCA Venture Monitor report. That sets fundraising for the year on track to be a fraction of last year’s figures. In 2022, some 892 venture funds raised $170.8 billion, per the data.

Limited partners are reducing their allocations to venture. “We have seen a reversal in the capital commitment trend compared with previous years, with a larger proportion of investors now planning to allocate less, rather than more, capital in the next 12 months,” said a report by analysis firm Preqin Ltd. based on a survey of institutional investors conducted in November of last year.

Sentiment on venture appears to have only soured since then, given the anemic exit environment and nerve-wracking events like the fall of Silicon Valley Bank.

When LPs do commit, they are sticking with the tried and true. Emerging firms, defined as those that have raised fewer than four funds, raised just 14% of the total capital in the first quarter, with the rest going to the more experienced fund managers, per PitchBook-NVCA.

“With LPs broadly, in the past in times like these, we usually see a flight to perceived quality which usually means more re-ups, particularly with larger and more established firms,” said Aakar Vachhani, partner at Fairview Capital, which invests in venture funds.