Why VC is so damn hard: one chart, two reasons.
1) It takes forever.
2) It's wildly uncertain.
Data from 1,700+ US venture funds that use Carta as their fund admin. A large majority of the funds included have less than $100M in committed capital, so this mostly a reflection of emerging manager funds.
Each line is a vintage year (2017-2022 included). And the percentage reflects the share of funds from that vintage that have any DPI at all ($1 counts).
Of course you don't expect VC funds to start returning capital to LPs immediately, so we charted the percentage with non-zero DPI by the number of quarters since the fund started.
𝗪𝗵𝗮𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀
More recent vintages have a lower share of funds returning any capital at basically every point along the timeline. After 5 years, only 36% of 2019 funds had some DPI vs 72% of 2017 funds.
But what about the secondaries wave we've been hearing about? Aren't VCs manufacturing a little DPI wherever possible these days? This data suggests not really. Secondaries are growing but are still only available for a small fraction of startups and investors.
This lack of liquidity contributes to the difficulty many emerging managers have in raising new funds at the moment. LPs with money locked up in prior vintages are more reticent (or in some cases literally unable) to fund new vintages.
The other, more nuanced reason LPs may not contribute to new vintages is that managers raised funds at a faster clip in the boom. If the average VC raised Fund III only 2.5 years after Fund II, it makes sense why the LPs feel tapped out on allocation.
Common wisdom across venture is that managers that receive some early distributions (maybe a portfolio company gets acquired after Series A) would do better to recycle that capital into their winners rather than return it to LPs. I...don't know if I agree.
Clear from the data: more emerging managers should be thinking about taking money off the table at points along the journey. Many who had that option in the 2021 boom declined to do so and are regretting that decision today. Everything looks up and to the right until it doesn't!
Lots more data coming in our VC Fund Performance Report, out on Tuesday - waitlist here: https://lnkd.in/gQuEudja
#venturecapital #VCfunds #liquidity #venturefunds
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