Startup fundraising squeeze continues as VCs struggle to fill their own coffers | Tech Crunch

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Many startups are hoping that the gradual opening of the IPO window and the prospect of interest rate cuts later this year will finally encourage VCs to be less stubborn with their capital.

But startups' fundraising slog isn't likely to ease any time soon, largely because of venture capitalists' own capital-raising challenges.

In Q1, US VC funds raised only $9.3 billion, according to Pitchbook data. At this pace, VC fundraising will top $37 billion in 2024, the lowest amount of capital raised since 2013 and a 54% decline from last year.

Like startups, VCs struggle to attract new capital from their backers, known as limited partners, such as endowments, foundations and pension funds. LPs have had lower cash distributions from their investments in VC funds due to a sharp decline in IPO and M&A activity over the past two years.

“We're coming out of the 2020 to 2021 period, scared of missing (LPs) and rushing into venture,” said Kirsten Morin, co-head of venture capital. Hivista Strategies, an asset manager that invests in venture funds. “Now they're licking their wounds and saying, 'Oh, no, I invested at the top of the market. It's going to be a while before I see any distributions.'

Other limited partners say they are more cautious about their investments until startup IPOs grow significantly. Redditof and Astera Labs Successful offers are not enough to get LPs excited about re-venturing.

Brand-name firms will continue to raise funds, but may have less capital to invest in startups than they did in the past. Take IVP, for example. The 43-year-old venture firm closed a $1.6 billion fund last month, down more than 11% from the $1.8 billion vehicle it raised in 2021.

But attracting new capital from LPs is not easy for small and new venture firms. “I think a lot of people may exit the business in the next few years,” said Chris Douvos, managing director of Ahoy Capital, which invests in funds and startups.

While this isn't great news for existing startups, it's not all doom and gloom. According to PitchBook's estimate, Dry Powder, Capital VCs have yet to invest from previous funds.

However, unless LPs open their coffers again, that amount will decrease.

“One poor fundraising quarter doesn't make or break a VC's future,” said Kyle Stanford, lead venture capital analyst at Pitchbook. “But if it continues, it will hit deal-making.”

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