Does recent scaling back of fundraising ambitions by a handful of high-profile venture firms foretell more widespread waning interest in mega-funds?
Andreessen Horowitz, Ribbit Capital and Haun Ventures are all targeting much smaller-sized funds than their most immediate predecessors. A16z is seeking $750 million for biotech and healthcare fund AH Bio Fund V, about half the size of AH Bio Fund IV, which closed on $1.5 billion in 2022, as reported by the Wall Street Journal recently.
Fundraising documents filed with the SEC on March 19 and fundraising data from affiliate title Buyouts show that Ribbit Capital is targeting about 41 percent less for two new funds combined than it raised for their precursors in 2021 and 2023.
The $1 billion that Haun Ventures is raising for two new cryptocurrency funds is 50 percent below the $1.5 billion fund it closed in 2022, as reported by Yahoo Finance. The $1 billion will be divided evenly between one fund focused on early-stage start-ups and a second fund centered on late-stage investments.
Despite the smaller fund sizes from Haun and others, it’s too soon to draw any sweeping conclusions about shifting appetites within the broader venture industry from a few cases, industry experts tell Venture Capital Journal.
The choices of a few VCs “may mean very little for the overall market,” says Barry Burgdorf, a partner at law firm Hogan Lovells whose advisory work is primarily done on behalf of clients investing in life sciences companies.
Where a VC firm is in its own fund life cycle is also a factor. Firms raising their second, third or fourth fund tend to still be growing, while those that have been around longer and have raised more funds may be less inclined to keep increasing their fund sizes, Burgdorf says.
Shifting allocation capabilities among LPs can also influence fund target sizes. “In an ideal world, you’ll get your old LPs to recommit and some of them to double down on the investment,” he says. “[But] you may have a great LP from Fund III, and when you’re raising Fund IV, [they say] ‘I’m sorry, the timing’s not right. I’ve got other things going on. I need to liquidate some other investments before I can commit,’ and they’re out.”
IPO market strength is another consideration as VCs are always looking at their exit opportunities, he adds. “The overall global and national political climate, which an individual fund [manager] has very little control over, could be an indicator of volatility [affecting] your fundraising efforts.”
Reversion to the mean
The scaling back of fund size by a few firms may also reflect a much smaller number of super-high-quality rounds that VCs are competing for access to, says Joseph Morrison, a partner at law firm Barnes & Thornburg, who advises venture-backable companies and venture funds on investments and general transactional matters.
“I’m seeing clients doing much less of those really competitive, really hot Series A and B deals, other than the ones that are $400, $500, $600 million and more [being done by] massive AI-driven companies [and] a lot of the defense tech [companies],” he says.
He suspects we’re seeing some “reversion to the mean of where fund sizes make sense. Yes, they’re somewhat smaller fund sizes, but they’re probably consistent with what they were before you saw multi-billion dollar funds and all these $500 million-plus rounds.”
There also may be less need for bigger funds with many VCs pressing founders to be more capital-efficient and more intent on generating revenue and free cash flow.
“That means you’re going to have a smaller pool of start-ups,” Morrison says. “There are just fewer companies meeting the criteria of being a durable, standalone business that can still deliver a 10x [return].”
Anecdotally, Morrison also cites growing participation of large funds in syndicated deals cobbled together by blue-chip venture firms (either through their primary funds or funds with additional special purpose vehicles participating to fill out a round) for later-stage companies. This opportunistic approach and broad syndication is “another reason why you could be seeing funds that don’t need to be $1 billion.”
Liquidity concerns
With public market volatility on the rise, some VCs may be anticipating growing concerns among LPs about the relative illiquidity of venture funds and the prospect of a return to unbalanced asset allocations.
Even within venture, some sectors are more illiquid than others, which could figure in fundraising choices.
“In life sciences, the payoff is longer,” says Burgdorf at Hogan Lovells.
In the technology business, “you develop a good piece of software, you get it out there, it clicks, it gains traction, you can have a return in three years,” he says. “In life sciences, everything can go smashingly well, [but] you may not see a return for seven to 10 years, so that’s always a challenge.”
That said, the funds that two of Burgdorf’s clients are now raising are targeting larger amounts than their prior vehicles, he says. And he is not seeing any hesitancy among these firms’ existing LPs to consider larger commitments than they made for earlier funds.
Does recent scaling back of fundraising ambitions by a handful of high-profile venture firms foretell more widespread waning interest in mega-funds?
Andreessen Horowitz, Ribbit Capital and Haun Ventures are all targeting much smaller-sized funds than their most immediate predecessors. A16z is seeking $750 million for biotech and healthcare fund AH Bio Fund V, about half the size of AH Bio Fund IV, which closed on $1.5 billion in 2022, as reported by the Wall Street Journal recently.
Fundraising documents filed with the SEC on March 19 and fundraising data from affiliate title Buyouts show that Ribbit Capital is targeting about 41 percent less for two new funds combined than it raised for their precursors in 2021 and 2023.
The $1 billion that Haun Ventures is raising for two new cryptocurrency funds is 50 percent below the $1.5 billion fund it closed in 2022, as reported by Yahoo Finance. The $1 billion will be divided evenly between one fund focused on early-stage start-ups and a second fund centered on late-stage investments.
Despite the smaller fund sizes from Haun and others, it’s too soon to draw any sweeping conclusions about shifting appetites within the broader venture industry from a few cases, industry experts tell Venture Capital Journal.
The choices of a few VCs “may mean very little for the overall market,” says Barry Burgdorf, a partner at law firm Hogan Lovells whose advisory work is primarily done on behalf of clients investing in life sciences companies.
Where a VC firm is in its own fund life cycle is also a factor. Firms raising their second, third or fourth fund tend to still be growing, while those that have been around longer and have raised more funds may be less inclined to keep increasing their fund sizes, Burgdorf says.
Shifting allocation capabilities among LPs can also influence fund target sizes. “In an ideal world, you’ll get your old LPs to recommit and some of them to double down on the investment,” he says. “[But] you may have a great LP from Fund III, and when you’re raising Fund IV, [they say] ‘I’m sorry, the timing’s not right. I’ve got other things going on. I need to liquidate some other investments before I can commit,’ and they’re out.”
IPO market strength is another consideration as VCs are always looking at their exit opportunities, he adds. “The overall global and national political climate, which an individual fund [manager] has very little control over, could be an indicator of volatility [affecting] your fundraising efforts.”
Reversion to the mean
The scaling back of fund size by a few firms may also reflect a much smaller number of super-high-quality rounds that VCs are competing for access to, says Joseph Morrison, a partner at law firm Barnes & Thornburg, who advises venture-backable companies and venture funds on investments and general transactional matters.
“I’m seeing clients doing much less of those really competitive, really hot Series A and B deals, other than the ones that are $400, $500, $600 million and more [being done by] massive AI-driven companies [and] a lot of the defense tech [companies],” he says.
He suspects we’re seeing some “reversion to the mean of where fund sizes make sense. Yes, they’re somewhat smaller fund sizes, but they’re probably consistent with what they were before you saw multi-billion dollar funds and all these $500 million-plus rounds.”
There also may be less need for bigger funds with many VCs pressing founders to be more capital-efficient and more intent on generating revenue and free cash flow.
“That means you’re going to have a smaller pool of start-ups,” Morrison says. “There are just fewer companies meeting the criteria of being a durable, standalone business that can still deliver a 10x [return].”
Anecdotally, Morrison also cites growing participation of large funds in syndicated deals cobbled together by blue-chip venture firms (either through their primary funds or funds with additional special purpose vehicles participating to fill out a round) for later-stage companies. This opportunistic approach and broad syndication is “another reason why you could be seeing funds that don’t need to be $1 billion.”
Liquidity concerns
With public market volatility on the rise, some VCs may be anticipating growing concerns among LPs about the relative illiquidity of venture funds and the prospect of a return to unbalanced asset allocations.
Even within venture, some sectors are more illiquid than others, which could figure in fundraising choices.
“In life sciences, the payoff is longer,” says Burgdorf at Hogan Lovells.
In the technology business, “you develop a good piece of software, you get it out there, it clicks, it gains traction, you can have a return in three years,” he says. “In life sciences, everything can go smashingly well, [but] you may not see a return for seven to 10 years, so that’s always a challenge.”
That said, the funds that two of Burgdorf’s clients are now raising are targeting larger amounts than their prior vehicles, he says. And he is not seeing any hesitancy among these firms’ existing LPs to consider larger commitments than they made for earlier funds.
