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The number of active venture capital investors has fallen by more than a quarter from its peak in 2021, as risk-averse financial institutions focus their money on the biggest companies in Silicon Valley.
outcome Venture capital Investment in US-based companies fell to 6,175 companies in 2024 – meaning more than 2,000 companies have become dormant since the peak of 8,315 companies in 2021, according to data provider PitchBook.
This trend has led to a concentration of power among a small group of larger firms and left smaller venture capital firms struggling to survive. This has also skewed the dynamics of the venture market in the US, enabling startups like SpaceX, OpenAI, Databricks and Stripe to stay private for much longer, while… Thinning Financing options for small businesses.
More than half of the $71 billion raised by US venture capital firms in 2024 was pulled by just nine firms, according to PitchBook. General Catalyst, Andreessen Horowitz, Iconiq Growth, and Thrive Capital alone have raised more than $25 billion in 2024.
Many companies have divested in 2024. Countdown Capital, an early-stage technology investment firm, announced it would wind down its business and return uninvested capital to its backers in January. Foundry Group, an 18-year-old venture capital firm with about $3.5 billion in assets under management, said a $500 million fund raised in 2022 would be its last.
“There is definitely a consolidation of venture capital,” said John Chambers, former Cisco CEO and founder of startup investment firm JC2 Ventures.
“Big men (like) Andreessen HorowitzSequoia (Capital), Iconiq, Lightspeed (Venture Partners) and NEA will be fine and continue. But he added that venture capitalists who failed to secure significant returns in the low interest rate environment ahead of 2021 would suffer because “this will be a more difficult market.”
One factor is a significant slowdown in initial public offerings and acquisitions — the typical milestones at which investors cash out of startups. This has halted the flow of capital from venture capital firms to their “limited partners” – investors such as pension funds, foundations and other institutions.
“The time to bring back capital has lengthened a lot across the industry over the last 25 years,” said one limited partner at a number of large US venture firms. “In the 1990s, it might have taken seven years to get your money back. Now it's probably closer to 10 years.”
Some LPs have run out of patience. The $71 billion raised by US companies in 2024 is the lowest level in seven years and less than two-fifths of the total amount in 2021.
Smaller and newer venture firms have felt the pressure acutely, with limited partners choosing to allocate funds to those with a longer track record and with whom they have pre-existing relationships, rather than risking new managers or those who have never returned capital to their firms. Supporters.
“Nobody gets fired because they put money into Andreessen or Sequoia Capital,” said Kyle Stanford, senior venture capital analyst at PitchBook. “If you don't sign on (to invest in their current fund) you could lose your place in the next fund: that's what you get fired for.”
Stanford University has estimated that the failure rate of mid-sized venture capital firms will accelerate in 2025 if the sector cannot find a way to increase its returns to VCs.
“Venture capital is and will continue to be a rare ecosystem where only a select group of companies consistently have access to the most promising opportunities,” the 24-year-old venture firm Lux Capital wrote to its limited partners in August. “The vast majority of new entrants are engaging in what amounts to financial foolishness. We still expect up to 30 to 50 percent of venture capital firms to go extinct.”
