By Kate Clark and Katie Roof, Bloomberg
There’s a crisis brewing for the next generation of venture capitalists. While Silicon Valley heavyweights like Sequoia Capital and Andreessen Horowitz are still able to bring in big checks, up-and-coming VCs are finding fundraising increasingly difficult.
Hundreds of small firms — which make up the majority of the VC industry — are struggling to raise money in the current market. Traditional investors in venture funds, like family offices and wealthy individuals, have pulled back thanks to high interest rates and economic uncertainty. Meanwhile, universities and their endowments have come under increasing financial pressure from House Republicans and the Trump administration.
In recent years, the whole venture industry has taken a hit, but new firms are particularly vulnerable. Emerging managers, defined as those that have raised three or fewer funds, saw their total funding in the US decline to $17 billion last year from a high of $64 billion in 2021, according to PitchBook data. So far this year, those managers have raised only $4.7 billion. The fundraising drought could spell the end for many new venture firms before they ever really got started.
“There are definitely more headwinds than tailwinds right now for emerging managers,” said Kristina Shen, co-founder of venture firm Chemistry. “You have to be smart.”
Shen, a former general partner at Andreessen Horowitz, is among the emerging investors still managing to raise money despite the more challenging economic climate. She started Chemistry last year alongside Ethan Kurzweil, a longtime general partner at Bessemer Venture Partners, and Mark Goldberg, a former partner at Index Ventures. In October, they announced a $350 million debut fund. Investors were drawn to the pitch of “three senior general partners coming together to form a partnership,” Shen said.
Other new firms that have recently pulled in cash include Conviction Partners, an artificial intelligence-focused venture fund, which announced a $230 million second fund in February, and Alt Capital, a $150 million debut fund launched by Jack Altman. But they’re the exception, Shen said. “Those funds have had very clear stories about why they are different.”
For the majority of investors trying to raise their first-ever VC fund, the situation is bleak. With more than 25,000 general partners having raised a fund since 1990, it’s more difficult than ever to stand out. So far this year, first-time fund managers have secured only $1.1 billion, according to PitchBook. That puts 2025 on track to fall well short of last year’s $6 billion — a total that was already down 75% from the 2021 record.
Although the data show a reduction in new funds raised, few firms publicly acknowledge it. Emerging firms often disappear quietly into the night, with fundraising efforts lingering indefinitely until the managers change career paths or join a larger firm. One exception is Countdown Capital, a young fund that announced earlier this year that it would shut down, citing intense competition from multi-stage mega funds.
The pullback is more visible when larger, established funds shut down or fail to meet their fund targets, an increasingly common occurrence. VC firm Foundry Group announced last year that it would not raise another fund, though it said it had always planned to wind down. In February, Tusk Venture Partners followed suit, and pivoted from VC investing to political consulting. Even big-name firms like Tiger Global Management and Insight Partners have reduced their fund targets.
Older firms with trusted brands and long track records have an advantage, though: They’re widely perceived as better positioned to weather an extended period of volatility.
Backing a big-name firm can “provide coverage” for an investor, said Earnest Sweat, co-host of the podcast Swimming with Allocators. Part of the appeal is a flight to safety, he said, adding that large firms do have real advantages. “Because of brand and being a founder magnet, they are going to see a certain amount of deals,” Sweat said.
Meanwhile, many LPs themselves are increasingly strapped for cash. The recent IPO slowdown and a broader trend of startups staying private for longer means that some long-time investors have found themselves overexposed to VC bets that have yet to pay off. Adding to the problem: universities and foundations, whose portfolios often include venture capital investments, have recently been on shakier political footing.
New firms are already feeling the crunch. PitchBook estimated last year that 250 of the roughly 700 first-time managers that raised funds between 2019 to 2021 will not be able to raise a second fund. In the period since this prediction was made, the political and economic climate has become even more uncertain.
“It’s going to be a very tricky moment to fundraise,” said Maria Palma, a general partner at Freestyle Capital, a San Francisco-based firm founded in 2009. “You can never rest on your laurels.”
What’s at stake if fledgling VCs go bust? Some industry watchers lament a potential loss of new investing talent. Many would-be investors will simply move on to other jobs or industries, even as larger existing firms cement their importance and power.
The contraction could also deal a blow to racial and gender diversity in the startup world, said Charles Hudson, managing partner and founder at Precursor Ventures.
There was a period, from 2019 to 2022, when investors from underrepresented backgrounds made strides in the industry, according to a report by advisory firm Cambridge Associates. During that period, which coincided with the Black Lives Matter and #MeToo movements, a record number of diverse managers joined VC. Most of them worked at emerging funds.
Those new entrants were victims of bad timing, Hudson said. That’s partly because many made the bulk of their investments during a “peak valuation environment,” he said. By late last year, 75% of that capital had been deployed, Cambridge Associates found — meaning many of those funds will need to raise money again this year.
Yet Hudson remains optimistic that some new fund managers will have longevity. “There will be people who survive and thrive,” he said.
For the emerging managers that have raised money recently, there are some hopeful signs, said Marco DeMeireles, co-founder of a new $132 million venture firm, Ansa Capital. DeMeireles, a former partner at investment firm TCG, said that the newest funds will be well positioned because they avoided the frothy valuations that came with the pandemic’s zero-interest-rate frenzy.
“With us being a newer fund, we are able to build a portfolio of those well-priced, appropriately priced, assets and grow with them over time,” he said. Ansa co-founder Allan Jean-Baptiste, previously an investor at CapitalG and KKR & Co., said emerging managers are particularly motivated — for existential reasons. “Your portfolio needs to perform for your fund to persist,” Jean-Baptiste said.
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