No, not every venture fund will need to slash its funding goals
The late-stage market is truly whacked. But it’s not only the startups who are suffering.
Insight Partners, a double-dipper growth equity and late-stage venture investor, recently reduced its fundraising target of $20 billion to $15 billion after raising a measly $2 billion of the pot.
Insight isn’t the only venture firm that has had to deflate its fundraising ambitions. TCV reportedly ended up raising only 55% to 75% of its $5.5 billion target for its fund last year, and Founders Fund cut its target in half from $1.8 billion to $900 million this March. We’ve also seen various firms, including Vibe Capital, return funds that they weren’t confident they’d be able to invest.
So what does it mean? While some are acting like this is the writing on the wall for fundraising this year, I think that view paints the industry with too broad a brush. Let’s get real here for a second: These firms wouldn’t be able to deploy all that capital in this climate, and resetting expectations now is better than having to change course later.
To put it into perspective, only $11.3 billion was invested in late-stage companies in the first quarter of this year, according to PitchBook. That’s the lowest quarterly total since the fourth quarter of 2017, which saw $8 billion invested.
Now let’s look at Insight, which was trying to raise $20 billion. If it were to raise that total and the late-stage market didn’t improve drastically over the next year or so, the firm would have to invest in a significant portion of all late-stage deals during their investment period. That wouldn’t allow them to pick and choose investments based on quality. Instead, it would put them in a race to get capital out the door.
Insight, which usually only comes in at the later stages when it is backing a startup, was trying to raise an absolutely laughable amount of money so it could invest in the slowest category in the market right now. I think it would have struggled to raise this much in any year except the boom times of 2021.