VC Retrenchment Not Evenly Distributed

US Tech Series A investment pace rose slightly from January to February, by about 7%. When adjusting for 10-year historical seasonality, it rose by about the same amount. Now, onto this month’s data deep dive…

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Venture Firm Hall of Fame/Shame

I was working with one of the Tunitas Ventures CEOs in pulling together a target list of firms for their upcoming Series A fundraising effort and was surprised to see the degree to which a high quality firm that had been very active during the 2021 boom times had scaled back their investment pace in the last 12 months. To look at this in more detail, I compared the Series A investment pace in the last 12 months (ending March 31, 2024) with the same period ending two years earlier (ending March 31, 2022). The pullback seen in the plot above has not been uniformly distributed! The firms that used to be most active have almost all retrenched more than the average.

To create the table below, I started with all the venture firms that participated in 15 or more Series A US Tech venture rounds in the 12 month period ending March 2022. That 15 rounds threshold yields the 99 most active firms during that period. I eliminated the 3 crypto-focused firms because that sub-sector is on a separate greed/fear cycle from the rest of tech. I then took the ratio of each firm’s investment pace in the last 12 months versus that of two years earlier, so seasonal effects cancel out. An important baseline is the overall US Series A Tech investment pace ratio of 42% (eg, from the graph above). As we can see in the table below, only five of the 96 firms were above this 42% threshold.?

I believe this is a significant badge of honor for these firms, from both the perspective of LPs considering investing in these firms, and entrepreneurs considering taking investment from these funds, so I’ve included the firm names for these five. It is very difficult to fight against the market forces that drive most investment groups toward a procyclical investment pace, despite the “buy high, sell low” nature of being procyclical.

?Of course, there are some fantastic venture firms among the large number of un-named firms on the table below. And each firm’s situation is its own story. A few have gone out of business; a few had material professional changes; a few moved to other stages; but mostly they are just exhibiting the procyclical behavior that is typical across all asset classes.