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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 firms.
According to data provider PitchBook, the number of VCs investing in US-based companies fell to 6,175 in 2024 – meaning more than 2,000 have gone dormant since a peak of 8,315 in 2021.
The trend has concentrated power among a small group of mega-firms and left smaller VCs in a fight for survival. It has also skewed the dynamics of the US venture market, enabling startups like SpaceX, OpenAI, Databricks and Stripe to stay private for much longer, while reducing funding options for smaller companies.
More than half of the $71 billion raised by US VCs in 2024 was raised by just nine firms, according to PitchBook. General Catalyst, Andreessen Horowitz, Iconiq Growth and Thrive Capital alone raised more than $25 billion in 2024.
Many firms threw in the towel in 2024. Countdown Capital, an early-stage tech 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’s absolutely a consolidation of VC,” said John Chambers, former Cisco chief executive and founder of startup investment firm JC2 Ventures.
“The big guys (like) Andreessen Horowitz, Sequoia (Capital), Iconiq, Lightspeed (Venture Partners) and NEA will be fine and will continue,” he said. But he added that those venture capitalists who failed to secure big returns in a low interest rate environment before 2021 would struggle as “this is going to be a tougher market”.
One factor is a dramatic slowdown in initial public offerings and buyouts — the key moments in which investors cash in on start-ups. This has hindered the flow of capital from VCs to their “limited partners” – investors such as pension funds, foundations and other institutions.
“The time to return on capital has gotten much longer in the industry over the past 25 years,” said one LP at a number of large US venture firms. “In the 1990s it probably took seven years to get your money back. Now it’s probably more than 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 in 2021.
Smaller, younger venture firms have felt the squeeze most acutely, as LPs chose to distribute to those with a longer history and with whom they have pre-existing relationships rather than risk new managers. or those who have never returned the capital in them. supporters.
“No one gets fired for putting money into Andreessen or Sequoia Capital,” said Kyle Stanford, principal VC analyst at PitchBook. “If you don’t sign up (to invest in their current fund), you could lose your place in the next fund: that’s what they fire you for.”
Stanford estimated that the failure rate for mid-cap VCs would accelerate in 2025 if the sector couldn’t find a way to increase its LP returns.
“VC is and will remain a rarefied ecosystem where 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 entrants engage in what amounts to a financial fool’s errand. We continue to expect the disappearance of 30-50 percent of VC firms.
