The number of U.S. venture capital firms is declining as cash flow flows to top tech investors
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The number of active venture capital investors has fallen by more than a quarter since its peak in 2021 as risk-averse financial institutions focus their money on Silicon Valley’s biggest companies.
The balance sheet of VCs According to data provider PitchBook, investments in US-headquartered companies fell to 6,175 in 2024 – meaning more than 2,000 are inactive since a peak of 8,315 in 2021.
The trend has concentrated power among a small group of mega-firms and pushed smaller VCs into a fight for survival. It has also distorted the dynamics of the US venture market, allowing startups like SpaceX, OpenAI, Databricks and Stripe to stay private for much longer thinning Financing options for small businesses.
According to PitchBook, more than half of the $71 billion raised by US VCs in 2024 was raised by just nine firms. General Catalyst, Andreessen Horowitz, Iconiq Growth and Thrive Capital alone have raised more than $25 billion in 2024.
Many companies threw in the towel in 2024. Countdown Capital, an early-stage technology investor, announced that it would withdraw in January and return uninvested capital to its backers. Foundry Group, an 18-year-old VC with about $3.5 billion in assets under management, said a $500 million fund launched in 2022 would be its last.
“There is absolutely VC consolidation,” said John Chambers, former CEO of Cisco and founder of start-up investment firm JC2 Ventures.
“The big ones (like) Andreessen HorowitzSequoia (Capital), Iconiq, Lightspeed (Venture Partners) and NEA will be fine and move on,” he said. However, he added that those venture capitalists who failed to generate big returns in a low interest rate environment before 2021 would struggle as “this will be a tougher market.”
One factor is a dramatic slowdown in initial public offerings and acquisitions, the typical milestones at which investors cash out startups. This slowed the flow of capital from VCs back to their “limited partners” – investors such as pension funds, foundations and other institutions.
“Time to return of capital has increased significantly across the industry over the last 25 years,” said an LP at a number of large U.S. venture capital firms. “In the 1990s it probably took seven years to get your money back. Now it’s probably more like 10 years.”
Some LPs are running out of patience. The $71 billion raised by U.S. firms in 2024 is a seven-year low and represents less than two-fifths of total revenue in 2021.
Smaller, younger venture firms have felt the squeeze the most, as LPs have chosen to invest in those with more business experience and relationships with, rather than taking a chance on new managers or such who have never returned capital to their supporters.
“Nobody gets fired for investing money in Andreessen or Sequoia Capital,” said Kyle Stanford, senior VC analyst at PitchBook. “If you don’t sign up (to invest in the current fund), you may lose your place in the next fund: you will be fired for that.”
Stanford estimated that the default rate for mid-sized VCs would increase in 2025 if the sector did not find a way to increase its returns to LPs.
“VC remains a rare ecosystem in which only a select group of firms consistently gain access to the most promising opportunities,” 24-year-old venture capital firm Lux Capital wrote to its LPs in August. “The vast majority of new entrants are committing something that amounts to financial foolishness. We still expect 30 to 50 percent of VC firms to die out.”
