Oct 15, 2022 - Economy

The curious case of 2022's venture fundraising

Illustration of a grouping of circles with dollar bill imagery trending upward with one outlier

Illustration: Natalie Peeples/Axios

It's becoming increasingly clear that 2021 will be an outlier year in virtually every way for startups... except one. U.S. venture fundraising is on track for a new record this year, per new Pitchbook data.

Why it matters: This incredible amount of capital will be more concentrated than before.

The big picture: With startup funding deals slowing down in 2022, the big question has been whether activity will completely vanish.

  • Many experts have pointed to the record amount of dry powder as a clue that it won't, since VCs don't get paid to sit on cash.

Still: Who raises funds (and how much of it) affects how that capital will be deployed in the startup market.

By the numbers: In the first three quarters of 2022, VCs have raised $150.9 billion across 593 funds, per Pitchbook.

  • That's compared to the 1,139 funds that raised $147.2 billion in all of 2021.
  • So far this year, 62% of the capital has gone to 6% of funds, and in Q3 alone, 86.7% of the money was committed to just 66 funds.

Between the lines: This is bad news for emerging managers as limited partners (LPs) stick to established managers, instead of backing newer ones that could be riskier investments.

  • Already this year, the share of dollars that went into experienced VCs is at its highest in the past decade, per Pitchbook.
  • The number of first-time managers raising funds this year is expected to fall below 2014 levels, though overall dollars have almost doubled.
  • Microfunds, often raised by first-time or emerging managers, have also slowed in fundraising activity.

What they're saying: "Portfolios are overweight so there’s not much room for anything," including emerging managers, Cornell University investment officer Roger Vincent said during a panel at SuperReturn in NYC last month.

  • And while there's a bit of natural attrition in portfolios, Vincent noted, it's "smaller than you'd think."

The other side: "From our discussions during our raise, we heard LPs started feeling empowered, even significantly motivated, to say no to new funds from some VCs they’ve felt inertia to stay with despite seeing performance lagging," Primary Venture Partners general partner Brad Svrluga tweeted this week.

  • "Everyone’s eligible for the chopping block these days," he added. Still, Primary raised two new funds this summer.

Yes, but: Megafunds are having a great year — a record 35 funds of over $1 billion have raised about $91 billion so far.

  • Last year, funds in that category raised just under $51 billion.

What we're watching: How this plays out over the next couple of years as pandemic-era funds get fully deployed; how this year's new capital makes its way into startups; and how returns will compare (many years down the line).

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