PE Outdoes VC Fundraising in H1 — Evening Brief – 09.24.24
A subdued exit market, volatility in the technology sector, and geopolitical uncertainty are significantly impacting venture capital (VC) fundraising, as evidenced by new data from PitchBook, which indicates a further fall in annual capital raised and closure rates from the peak in 2021.
Venture capital firms secured $84.4 billion across 653 funds in the first half of the year, as revealed by the latest Private Market Fundraising Report from the data provider, suggesting the sector is significantly trailing behind last year’s subdued total of $198 billion, and markedly lower than the $369 billion and $334 billion raised in 2021 and 2022, respectively.
The report also indicated that the close periods for VC funds are increasing. The median was tracking at 17.3 months during the first half of 2024, a significant increase from the 9.6 months recorded in 2022 and the 12.8 months in 2023.
“With LP capital not as freely available, many fewer VC funds are getting to their desired closing amount in a timely fashion,” wrote Pitchbook. “In 2022, over 3,300 VC funds closed, whereas in the 12 months through Q2 2024, only 1,670 had done so.”
The report noted that a lack of commitments from investors has given rise to competition, to the benefit of general partners with established track records compared to those without. “Experienced GPs raised 69.8% of capital in H1 2024, tracking above the proportion from each year in the past decade.”
The largest close in the first half of 2024 was the $3.8 billion a16z Growth Fund raised by Andreessen Horowitz, with Norwest Venture Partners XVII and Technology Crossover Ventures (TCV) XII both reaching $3 billion. Nevertheless, TCV’s close was a significant decrease from the $4 billion it raised for Fund XI in 2021, and other firms, such as Tiger Global, have experienced even more significant declines between fund vintages.
PE Firms Shine
Private equity fundraising had a significantly better first half, amassing almost $300 million and putting it on course to outperform the $572.5 billion raised by buyout firms in 2023 and potentially breaking the $618.9 billion total from 2021 this year.
The lion’s share of fundraising continues to be driven by experienced managers seeking to raise bigger megafunds, PitchBook said, with over half of the capital raised globally in the first half of the year coming from just 12 new megafunds of more than $5 billion.
Private equity has not been immune to the bumpy financial environment, with the median time to close a buyout fund in the U.S. increasing to 18.1 months so far this year from 14.7 months in 2023.
“Although a shift in monetary policy should free up capital available for fundraising in H2, we remain wary that H1 2024 was strong for PE fundraising and some of the largest funds closed during this period, so H2 may prove to be weaker than H1,” PitchBook said.