📶 bad year to raise / good year to vintage

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We’ve seen this first-hand over the past three years, but raising a small / first-time fund is pain.

Longer timelines, more meetings, more proof of work - this is the new normal.

Now we have some data to back that claim up.

We break it down in today’s piece.

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In the least surprising news you’ll hear all day … smaller venture capital funds are still having a tough fundraising year.

In 2024, only 118 U.S. venture funds have closed with sub-$500M targets. according to Crunchbase data.

None of this is shocking when you consider:

All of this has led to less smaller funds being raised.

Why it matters: Winning LPs is hard in a bull market, but it’s a totally different game in a bear market.

LPs can allocate to wherever they can find the highest yield. That means early-stage venture funds are competing for allocations with traditional real estate, private debt, public equities, other alts, crypto, etc.

And as the data shows, less and less LP capital has been going towards smaller funds.

For smaller VCs, this means fewer checks and tighter constraints on deployment.

This is more than a supply-demand mismatch, and it marks a shift in venture dynamics where high-risk early-stage capital is at risk of thinning. The squeeze has already signaled a reset (a thinning of the fat if you will), and we think some funds will close, while others, particularly those with unique niches or standout LP relationships, will find ways to survive.

What happens next: Smaller funds are not going away, but it has become a LOT harder to close your fund I. The bar has been raised, and LPs are no longer throwing out YOLO checks to first time managers.

If you want to raise your first fund, you should come prepared with:

If you don’t come with that, be prepared for a long and brutal fundraising trail.

We’ll see if the overall fundraising market changes with a new regime in the White House, but that’s too hard to predict.

It should be noted that many of the best-performing funds of all time vintaged coming out of a recession.

Just something to note …

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- Clay

Here are the results from our poll question in yesterday’s piece:

What sport will be more popular in the US in five years?

🟩🟩🟩🟩🟩🟩 Padel (10)

🟨🟨🟨🟨⬜️⬜️ Pickleball (8)

18 Votes