In many ways, the current fundraising environment seems difficult for smaller start-up investors. This is reflected in the number of recent funds.
So far in 2024, only 118 small and medium-sized US startup investors 1 raised recent funding of $500 million or less per Crunch Base data. This means this year will have the opportunity to supply by far the fewest recent funds in this category in years, as shown below.
It’s no wonder that slow fundraising comes at a time of slow investment exit. Tech IPOs have been dormant for months, and we’re not seeing many M&A deals delivering returns on investment.
It also doesn’t help future 2024 funds that many older vehicles are still well capitalized. Total venture capital funding is still well below its 2021 peak, and much of it, which was raised in tougher market conditions, has proven cautious as the cycle has turned.
According to a recent one report With Cardthe funds collected in 2022 engaged 43% of the capital employed inside 24 months, which is the lowest percentage of all analyzed years. The percentage of seed-financed firms that advance to Series A has also decreased.
Not just less funding; also less capital
Not only are investors raising fewer recent funds; in addition they secure less capital. This year, a total of $13.7 billion went to funds price lower than $500 million in our sample. Again, as shown in the chart below, this looks to be the lowest it has been in years.
The decline comes as average round sizes have increased in recent quarters, which can favor funds with deeper pockets. Especially with huge mega-rounds like this year’s funding for OpenAI AND xAImost of the capital is provided by large funds.
Still, smaller funds have long played a key role in identifying and supporting early-stage startups that grow into transformative firms. Because they invest smaller sums, they are in a position to generate solid profits without having to make a billion-dollar exit.
Although small, 2024 is still an intriguing vintage
Although fundraising for small and mid-sized funds will be slow, it is not boring.
On the contrary, there’s quite an exciting range of recent and follow-on funds coming out this year. Many of them focus on sectors akin to clean technologies, life sciences and cybersecurity.
To get an idea of who’s raising money, we have compiled sample lists of standouts, ranging from larger funds, subsequent funds, and smaller newcomers.
Among the larger and subsequent funds, the following deserve special mention:
- Engine venturesA Massachusetts-based venture capital firm that invests in founders working on “difficult technology” problems raised $398 million in Fund III in June.
- Clean energy venturesbased in Boston finalized a $305 million donation in May to a second oversubscribed fund that can focus on hardware-oriented technologies that may significantly reduce greenhouse gas emissions.
- Ballistic venturesbased in San Francisco has secured $360 million for a second oversubscribed fund that can invest exclusively in cybersecurity.
- Costanoy’s venturesbased in Silicon Valley, announced in September that it had closed $275 million for its fifth early-stage fund and raised nearly $120 million in its third opportunity fund, which goals to further invest in existing portfolio firms.
To get a broader picture of the $250 million-plus funds that closed this year, we compiled a list using Crunchbase data.
Smaller funds and first-time start-up funds are also a part of the mix. Here are some of the individuals who raised money this year:
- Beta boombased in Salt Lake City has raised a $14.5 million inaugural fund with a mission to take a position “everywhere beyond Silicon Valley” and focus on seed and pre-seed startups.
- JFF venturesa Boston-based early-stage investor focused on education and the way forward for work has raised $15 million for its latest fund.
- Pooled capitalbased in Miami, lifted up over $20 million for a debut fund that can invest in technology and software firms at an early stage of development.
- Create health ventures, Closed first $21 million fund in August. Based in Austin, Texas, the fund will invest in early-stage digital health startups.
Funds raised during down cycles have historically performed higher
Those who have managed to shut capital are helped by the proven fact that funds raised in slow fundraising environments have performed quite well.
One of the most successful deals of all time – Speed upThe major investment in 2005 A series on Facebook (now Meta) — got here out of its Fund IX, a downsized vehicle created in the wake of the dot-com crash.
Another company well-known for being successful after launching during difficult economic times is Andreessen Horowitz. The company raised its first fund in mid-2009, during the Great Recession. Since then every little thing has gone quite well.
Time will tell whether the latest crop of recent funds will follow suit. However, since startup investors are typically optimistic, I’m sure this thought has crossed their minds.