A growing number of venture capital firms may be uncorking the champagne ahead of the New Year. Today, a few investment firms announced new funds: Artis VenturesBoxGroup, Playground Global and Singular all closed with funds, while Partech said it is launching a 360 million euro venture fund.
Against a backdrop of layoffs and continued economic uncertainty, the announcements—especially in such quick succession—come as something of a shock. But they point to some underlying truths about the market right now.
Institutional investors are still interested in venture capital as an asset class. With more rational valuations, they see 2024 as a good time to use money in startups. They are also keen to maintain their relationships with venture firms that have delivered on some of their promises in recent years, especially after taking a breather in 2023.
As Lerer Hippeau CEO Eric Hippeau told TechCrunch last year when the company raised $230 million in 2022: In 2021, “[A]All the limited partners were overwhelmed by people who raised two funds in one year or much more than usual.”
The question is to what extent LPs are starting to loosen their wallets, and despite today’s flurry of funding news, the answer is far from clear.
Steph Choo, a partner at venture capital firm Portage, says it’s still a “tough fundraising environment.” He believes what we are seeing is the result of continued interest in funds with strong track records and distributions on paid-in capital.
Karim Gillani, general partner at Luge Capital, agrees with the sentiment. Limited Partners “will continue to support fund managers who believe they can not only pick these companies consistently, but can enter into these deals when they are competitive,” Gillani said via email.
Falling valuations may also attract the attention of institutional backers, whose portfolio managers may have overpaid for deals in recent years due to a frothy market — and who can, for now at least, get much better deals on talented teams .
“As a fund, if you have dry powder, now is the time to deploy it, because the best historical returns in the venture have come from post-revaluation periods,” Chu said via email. “Some long-term LPs are also looking at these same historical trends, coupled with the broader macro economy (strong public market performance, calls for a soft landing, etc.), which may cause renewed interest next year.”
Meanwhile, LPs may not be responding so much to what’s around the corner in 2024, but looking beyond the longer horizon, particularly given that venture funds typically invest over a 10-year period.
As Gillani notes, so many new fund announcements don’t necessarily suggest that 2024 will be “a prosperous year.” The bet is more likely that the venture industry—always a cyclical business—will always recover, and that that recovery will happen sooner rather than later.
Connie Loizos also contributed to this article.
