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The number of active venture capital investors has fallen by more than a quarter from a peak in 2021, as risk-averse financial institutions focus their money on Silicon Valley’s biggest companies.
Calculation of VC Investments in US-headquartered companies fell to 6,175 in 2024 – meaning more than 2,000 idled from a peak of 8,315 in 2021, according to data provider PitchBook.
This trend has concentrated power among a small group of mega-firms and left smaller VCs struggling to survive. It also skewed the dynamics of the US venture market, enabling start-ups like SpaceX, OpenAI, Databricks and Stripe to stay private for longer. Thin out Funding options for small companies.
According to PitchBook, more than half of the $71 billion raised by US VCs in 2024 was pulled by just nine firms. General Catalyst, Andreessen Horowitz, Iconic Growth and Thrive Capital alone have raised over $25 billion by 2024.
Many organizations threw in the towel in 2024 Countdown Capital, an early-stage technology investor, announced it would close and return uninvested capital to its backers in January. Foundry Group, an 18-year-old VC with about $3.5 billion in assets under management, said a $500 million fund raised in 2022 would be its last.
“There is absolutely a VC consolidation,” said John Chambers, former CEO of Cisco and founder of start-up investment firm JC2 Ventures.
“Big boys [like] Andreessen Horowitzsequoia [Capital]Iconiq, Lightspeed [Venture Partners] And the NEA will be fine and will continue,” he said. But he added that venture capitalists who fail to secure big returns in a low interest rate environment before 2021 are going to struggle as “it’s going to be a tough market”.
One reason is the dramatic slowdown in initial public offerings and takeovers – common milestones where investors make money from start-ups. It also stabilized the flow of capital from VCs to their “limited partners”—investors such as pension funds, foundations, and other institutions.
“In the last 25 years the return on capital across the industry has been very long,” said one LP of one of the largest venture firms in the US. “In the 1990s it took maybe seven years to get your money back. Now it’s probably like 10 years.”
Some LPs have run out of patience. The $71 billion raised by US firms in 2024 is a seven-year low and less than two-fifths of the total raised in 2021.
Smaller, younger venture firms have felt the pressure most acutely, as LPs have chosen to allocate to those with long track records and those with pre-existing relationships rather than taking risks on new managers or those who have not returned their capital. supporter
“No one gets fired for putting money into Andreessen or Sequoia Capital,” said Kyle Stanford, chief VC analyst at PitchBook. “If you don’t sign in [to invest in their current fund] You may lose your place in the latter: for that you will be dismissed.”
Stanford estimates that the failure rate of mid-sized VCs will accelerate in 2025 if the sector does not find ways to increase its returns on LPs.
“VC is and will remain a rarefied ecosystem in which only a select cadre of firms consistently access the most promising opportunities,” 24-year-old venture firm Lux Capital wrote in its LPs in August. “The vast majority of new participants engage in what amounts to a financial fool’s errand. We expect 30-50 per cent of VC firms to disappear.”
