Dow Jones VentureSource: 516 new US venture funds raised since 2013, with 133 in 2016 and 87 so far in 2017; firms raised $44B in 2016, most since dot-com crash
Eliot Brown / Wall Street Journal :
Context & Ripple Effects
The fund-formation wave has been building for years: after venture funds raised $29.8B in 2014, a 69% jump over 2013 and the most since 2007, the total climbed to $44B in 2016 — the highest since the dot-com crash. Dow Jones VentureSource now counts 516 new US funds formed since 2013, with formation peaking at 133 in 2016 before easing to 87 so far in 2017.
The composition matters as much as the count: alongside the newcomers, 30 US VC funds raised $500M or more each last year, up from 17 in 2015 and the most since 54 in 2000 — so the wave is producing both a long tail of small funds and an unusually large cohort of giants.
First-order effects
- Hundreds of first-time fund managers are now competing for limited-partner commitments against the same pool of institutional capital that is simultaneously funding the largest mega-funds since 2000.
Second-order effects
- With more funds chasing deals, pricing pressure on startups intensifies from both ends — small funds bidding on early rounds while the big funds concentrate capital in later-stage winners, squeezing mid-sized firms in between.
Third-order effects
- If the pattern holds, the market bifurcates into mega-funds and micro-funds, and the gap gets filled by outside capital: by Q2 2021, non-VC funds were investing in a record 42% of tech startup funding deals, suggesting traditional VCs' share of startup financing erodes as the fund count grows.
The trend: US venture capital is fragmenting into a barbell of giant funds and a record tail of small ones — more sub-$100M funds were raised in 2018 than any prior year — pulling non-VC money into the deals they leave open.