VC firms are holding on to their checkbooks as the investment market slows to a crawl, but fund managers are taking advantage of the lull to fill up their coffers to the point of overflowing.
In the first half of 2022, U.S. venture capital firms raised a $121.5 billion, a stunning leap from the $74.1 billion raised in the same period last year, according to PitchBook. The year’s first six months also saw a record 30 funds raise $1 billion or more.
But the numbers don’t paint the full picture.
“I doubt many funds are entering the market right now.” Kyle Stanford, analyst, PitchBook
For one, this success is not shared equally. While it never really is — larger, more established firms traditionally have the network and LP relationships that make it easier to collect large amounts of money — the divide between the megafunds and the rest of the market has widened by quite a margin this year.
At this time last year, PitchBook reported that nearly half of the LP money raised by VCs was invested in funds larger than one billion dollars. In the first half of 2022, that portion increased to 63.9%, meaning nearly two-thirds of venture capital was raised by just 30 funds.
Plus, there were very few firms that raised more than a billion dollars in the first half that weren’t already raising that much. Of the few new entrants, the majority were first-time crypto-focused funds, such as Haun Ventures and Electric Capital, most likely riding the industry’s 2021 surge.
On the flip side, first-time funds are not seeing the same success they did last year. More than 250 first-time funds were closed in 2021, but in the first half of 2022, only 70 such funds closed.
Investors may be stocking up ahead of a longer downturn. Indeed, Kyle Stanford, an analyst at PitchBook, said a drastic drop in the second half of the year is likely.
“I do think we will see a slow down in the back half of the year,” Stanford told TechCrunch. “Once we get to the end of Q3, of Q4, all the funds will have been going through, or up against, this climate for at least three-quarters of a year. I doubt many funds are entering the market right now,” he said.
But while the numbers are notable, were they as good as they were supposed to be originally? While it’s hard to track, Stanford says it is likely that not every fund hit their fundraising target, which is in line with what an endowment told me they were seeing a few weeks ago.
“Funds aren’t going to get an extra $500 million right now. You might as well close the fund, start investing out of it and move on,” Stanford said. “Fundraising does take a ton of time from these GP schedules. Any extra time spent on fundraising in a market that might not get to that original goal doesn’t make too much sense from the GP standpoint.”
Plus, while the market was just beginning its wild cavorting in Q1, by the end of Q2, LPs had had enough time to think about rebalancing their portfolio or taking commitments off the table.
“I would imagine there have been LPs that have been hit more than the broader market who have had to pull commitments,” Stanford said. “We have heard anecdotally that many LPs committed their 2022 allowance in 2021. If that’s the case, I would point to a slowdown in the back half of the year regardless of what they are doing.”