Investing in investors in 2024.

How many LPs (our investors) are looking to invest in venture capital funds next year? i.e. how much capital will be available to startups? I’ve extracted some key founder-relevant findings.

As the year closes, the future forward surveys come out. Here’s the latest from VCJ who interviewed 117 institutional investors worldwide - 70% US and Europe, mostly pension funds, insurance companies and fund of funds. Family offices only make up 8% of the survey participants. (NB this survey has only run for 5 years).

The peaks and troughs in deployment over the coming years will have deep, long and meaningful consequences for our industry. After booms to bust there are often deep withdrawals from certain asset classes when fingers get burned.?

I’ve broken down what I perceive as the most ‘founder relevant findings’ with notes and suggested consequences.?

How much will LPs invest in venture capital next year?

20% said more, and 33% said less. The more response was the lowest ever, while the less response was the highest. For context - During the boom years of 2021 / 2022, 40% of LPs said they would invest more in VC in the following 12 months, and 12 percent said less.

No surprise. There’s a strong argument to zig while others zag especially as it’s patient capital. But LPs are over-exposed, over-sold and fatigued. These ebbs and flows will carry inertia over time. It will ripple up and down the stages with the US bouncing back first.

What’s the backstory?

Just 6% of investors said VC returns exceeded their benchmarks, which was a massive drop from 46% last year and a high of 68% in 2022.

Again, no surprise. It was pass-the-parcel nuts time in the good ol’ days with DPI galore. But the party stopped. Pop. That’s going to smart. Especially when I can make 6% in the bank.

Who’s getting the cash?

1st time managers still being swiped left. Only 10% of LPs said they are more likely to invest in new managers next year, down slightly from last year. Those who said they were just as likely down from 33% to 29%. The less likely group made up 19%, down from 28%. The “never new” LPs nearly doubled from a year ago to 42 percent.

So, same same - new managers have never been popular, except now the flat no’s has doubled. This will mean more of the new VC crowd will close their doors or not start-up. Which will mean fewer niche and fewer early stage VCs coming through - which is a shame as we tend to outperform the big brands and mid tiers in our specialities. Expect more Sifted clickbait articles about fewer female and minority VCs.

More or fewer managers?

The proportion of LPs looking to add VC managers plummeted to 30%, its lowest point in the history of the survey. Down from 56% in 2023 and a high of 66% in 2022. Likewise, the percentage of investors looking to decrease their number of managers hit a high of 19%.

This just adds to the VC pain. Fewer doing less is not good news up or down the stages, globally. This tends to suggest a protracted recovery. We need this waterfall flow of money down from them through us to you.

Which stages are getting the love?

Seed investing pretty much same levels as last year with 24% stating they will invest less in Early Stage (A+). Growth most impacted with 30% of LPs saying they will invest less in the latest stages.

Seed holding firm makes sense, risk adjusted it’s healthiest in times of trouble. Timing is everything here. Holding out for how long across how many stages. Again this is inertia baked in. Ideally we’d see a healthier balance to enable the full draw up the stages through to trade or IPO. It’s that full stack flow that matters so LPs see exits and DPI. Then the recycling can continue to fuel the whole industry.

Biggest challenges for LPs?

The top 3:

1. Access. 2. Picking winners. 3. Fewer returns

There’s no real founder insight here but I’ve included because it may be interesting. Most notably - access to tier 1 funds has eased, the ability to pick winners will always be a perennial challenge, I’d assume only noted more now because there are more newer entrants plus when the chips are down on what basis do you make a decision for the next cycle? It’s a strategy dilemma as to which trends to lean into when there is no flow to follow.

All in all a ***** time to fundraise if you’re a VC! :)

(yeah yeah I can hear the small violins)

Makes sense? Help reveal the backstory?

Love to hear thoughts or questions.