PitchBook: the number of VCs investing in US startups fell from a peak of 8,315 in 2021 to 6,175 in 2024; 9 firms raised 50%+ of the $71B raised by VCs in 2024
Risk-averse financial institutions concentrate money on biggest Silicon Valley VCs in trend that threatens smaller groups Bluesky: @radiobeartime.com Bluesky: Mark O'Neill / @radiobeartime.com : There's a word for this [embedded post]
Context & Ripple Effects
The drop in active US venture investors follows a broad 2023 pullback in US venture investment and a 2024 fundraising slowdown that PitchBook described as the end of the megafund era. The new figures show that the contraction is affecting not only startup deal activity but also the number of firms able to invest.
Capital has remained available within the asset class: PitchBook previously counted $311 billion of unspent VC cash as investors became more risk-averse. This report indicates that new commitments are being directed to a much smaller set of established managers.
First-order effects
- The nine firms raising more than half of 2024's $71 billion gain a disproportionate share of the capital available for future startup investments.
- Smaller VC groups face tighter fundraising conditions as institutional backers concentrate commitments with the largest Silicon Valley firms.
Second-order effects
- A smaller pool of active VC firms narrows startups' set of potential equity investors, while better-capitalized firms can exert greater influence over which companies and rounds receive backing.
- Emerging managers will need to differentiate their sourcing or sector expertise to compete for limited-partner commitments that are increasingly concentrated among incumbents.
Third-order effects
- If this persists, venture capital could become more barbelled: a few large multi-stage platforms alongside a thinner set of specialist or emerging funds, rather than a broad middle tier of generalist investors.
- Concentration at the fund-manager level can transmit into startup financing, making access to capital more dependent on the investment priorities of a small number of firms.
The trend: This is part of a broader trend of institutional capital concentrating with established venture managers during a prolonged reset in startup financing.