Feb 13, 2024 - Economy

Venture capital fund distributions hit 14-year low

Data: PitchBook; Note: Data is for funds 5 to 10 years old; Chart: Axios Visuals

Venture capital distributions have fallen to lows not seen since the financial crisis.

Why it matters: For venture capital funds and their investors, the anemic IPO market isn't just an annoyance. It's cutting off the industry's circulation.

How it works: VC funds can't return money to their investors (known as limited partners, or LPs) until they sell off their stakes in companies, usually via M&A, public listings, or secondary sales.

  • LPs typically use some of those distributions to invest in new VC funds, so the decline is one of the reasons that VC fundraising has slowed dramatically (last year's fundraising was the lowest since 2017, according to PitchBook).

State of play: "Until a significant number of IPOs and liquidity starts flowing back to LPs, funds with low distributions will struggle to raise money," wrote PitchBook in a recent report.

  • A "large number" of VCs will probably fail to raise their next fund in the coming years, wrote PitchBook analysts in a separate report.
  • And on the LP side, institutional investors like foundations and endowments rely on the expectation of somewhat regular distributions. Some of them have encountered "budgetary issues" as a result of the slowing distributions, the report noted.

Zoom out: It's not just VCs — it's private equity funds, too.

  • Last year, PE funds returned the lowest share of capital to their LPs since 2009, Bloomberg reported, citing data from Raymond James Financial.
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