Venture capital fundraising reached a nine-year low as economic pressures start to dissuade investors.
- In the fourth quarter of 2022, venture firms raised nearly $20.6 billion in funds—a 65% drop from the year before and the lowest fourth-quarter results since 2013, The Wall Street Journal reports.
- The fourth quarter results also saw significantly less funding raised than in the previous three months.
- Limited partners—those who back the funds—invested in 226 venture-capital funds during the fourth quarter. In 2021, limited partners invested in 620 funds during the fourth quarter.
Why it’s news
Over the last decade, investors have enthusiastically poured capital into venture funds as investors assumed they would bring about more immediate returns than other assets. With so much funding available, startup investors were able to raise multibillion-dollar funds for startups.
Venture-capital firms are slowing the pace at which they distribute their funding. Several are still skittish after tech startups began to struggle last year. High interest rates, lower stocks and valuations, and fewer public exits mean limited partners haven’t had as many opportunities to back new endeavors.
“There is just less demand from certain limited partners who are already fully allocated,” says Amplify Partners’ Sunil Dhaliwal. “It is a moment of indigestion.”
As a result, venture-capital firms are cutting back on their fundraising goals for this year. Tiger Global Management has reduced its target venture fund from $6 billion to $5 billion. In 2021, Tiger was the most active U.S. startup investor. If Tiger can raise the projected funds, it will be less than half of the amount Tiger raised in 2021.
Firms are also growing more cautious about who they invest in. The bullish market in the last few years encouraged less-experienced investors to enter the market. In 2021, 141 of the funds limited partners backed were run by first-time managers—a 59% drop from the previous year.
As firms are more cautious with where their funding goes, they will become more selective with how they invest. First-time managers aren’t as likely to win over the trust of major firms.