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The number of active hedge fund investors has fallen by more than a quarter from a peak in 2021, as risk-averse financial institutions target their money at big firms in Silicon Valley.
List of VCs Investments in US-headquartered companies fell to 6,175 in 2024 – meaning more than 2,000 in 2024 have fallen since a peak of 8,315 in 2021, according to data provider PitchBook.
The trend has concentrated power among a small group of mega-firms and left small VCs in the fight for survival. It also turned the power of the American venture market, allowing startups such as SpaceX, OpenAI, Databricks and Stripe to remain private for a long time, while. to thin out financing options for small companies.
More than half of the $71 billion raised by US VCs in 2024 was attracted by just nine firms, according to PitchBook. General Catalyst, Andreessen Horowitz, Iconiq Growth and Thrive Capital alone raised more than $25bn by 2024.
Many firms threw in the towel in 2024. Countdown Capital, an early stage technology investor, announced it was winding down and returning uninvested capital to its backers in January. The Foundry Group, an 18-year-old VC with $3.5bn in assets under management, said the 500mn fund raised in 2022 would be its last.
“There's a whole lot of VC consolidation,” said John Chambers, former Cisco chief executive and founder of venture capital firm JC2 Ventures.
“Big boys (like these) Andreessen HorowitzSequoia (Capital), Iconiq, Lightspeed (Venture Partners) and NEA will be fine and will continue,” he said. But he added that venture capitalists who fail to get big returns in a low interest rate environment before 2021 will struggle as “it's going to be a tough market”.
Another factor is the surprising slowness in initial public offerings and takeovers – the usual events in which investors withdraw money when starting out. That has intensified the flow of money from VCs back to their “limited partners” – investors such as pension funds, foundations and other institutions.
“The payback period has increased dramatically across all industries over the past 25 years,” said LP for a number of large US companies. “In the 1990s it probably took seven years to get your money back. Now it might be 10 years. ”
Some LPs are impatient. The $71 billion raised by US firms in 2024 is a seven-year low and less than two-fifths of the total in 2021.
Smaller, smaller firms felt the squeeze, as LPs preferred to assign to those with a long track record and those with pre-existing relationships, rather than taking risks on new managers or those who had never returned money to their companies. supporters.
“Nobody gets fired for investing in Andreessen or Sequoia Capital,” said Kyle Stanford, lead VC analyst at PitchBook. “If you don't sign (to invest in their current fund) you can lose your place in the next one: that's why you get fired.”
Stanford predicted that the failure rate of medium-sized VCs would increase by 2025 if the sector could not find a way to increase returns to LPs.
“VC is and will always be a rare ecosystem where only a select group of companies always reach the most promising opportunities,” wrote the 24-year-old firm Lux Capital in its LPs in August. “Many of the new participants are engaging in what amounts to financial folly. We continue to expect the end of 30 percent to 50 percent of VC firms.