Raising a first-time fund? Worst time in 10 years.
Raising a first-time fund? Worst time in 10 years.
The Challenging Landscape for Emerging Managers in Venture Capital
Venture capital is a tough industry to break into. Convincing investors to take a chance on a new fund manager can be an uphill battle, especially when there’s a lack of a strong track record. And now, in an oversaturated market that has seen limited partners deprived of distributions and heavily exposed to the private markets, it’s even harder for emerging managers to gain traction.
Investors are not being swayed by compelling pitches or even promising past investments. Instead, they’re drawn to the tried-and-true firms that have a history of success. This reality is reflected in the fundraising figures for emerging managers. According to PitchBook data from mid-April, emerging managers had only raised $2.3 billion for 56 funds this year. If this trend continues, 2023 will be the worst year for emerging manager fundraising in over a decade.
Here’s a breakdown of the fundraising challenges faced by emerging managers:
| Year | Total Assets Raised |
|---|---|
| 2013 | $10.4 billion |
| 2014 | $11.6 billion |
| 2023* | $2.3 billion |
*As of mid-April
As the table shows, emerging managers have a long way to go to catch up with the fundraising metrics of previous years. To surpass the levels seen in 2013 or 2014, managers will need to raise at least five times the amount they have raised so far this year.
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It’s not surprising that fewer fund managers are even attempting to launch emerging funds in this challenging market. The number of funds raised by mid-April is significantly lower than in previous years. The hesitation is justified, considering the uphill battle they face in raising capital.
The situation becomes even more disheartening when we look at the changing size of funds. Since the Dot Com bust, emerging managers have seen a decline in the size of funds raised compared to established firms.
| Year | Median Fund Size (Emerging Managers) | Median Fund Size (Established Firms) |
|---|---|---|
| Pre-2000 | $100 million | $150 million |
| 2000-2004 | $60 million | $100 million |
| 2005-2009 | $45 million | $100 million |
| 2010-2014 | $30 million | $100 million |
| 2015-2019 | $20 million | $100 million |
| 2020-2023* | $13 million | $100 million |
*As of mid-April
With the challenges posed by the market and the declining fund sizes, the prospects for emerging managers may seem bleak. However, there is still hope for those brave enough to go it alone this year. Though the odds may be stacked against them, determination and perseverance can still lead to success.
WeWork’s Dismal State
In other news, WeWork, the once high-flying unicorn, is struggling to find its footing. The company’s recent earnings report included a “going concern” warning, and its losses have led to discussions about bankruptcy and exploring alternative strategies. This development has caused WeWork’s shares to plummet, leaving the company with a market cap of only $270 million— a stark contrast to its peak valuation of $47 billion in 2019 before its failed IPO attempt.
CVC Capital Partners’ Focus on Asian Investments
While some investors are pulling back from investments in Asia, private equity firm CVC Capital Partners is doubling down. The firm recently disclosed in an SEC filing that it has raised $4.5 billion for its sixth fund focused on Asia. This is a clear indication that CVC sees continued potential in the region and is actively seeking opportunities despite the current market conditions.
In conclusion, the fundraising landscape for emerging managers in venture capital is challenging, to say the least. The oversaturated market, lack of distributions, and competition from established firms have created a tough environment. However, with determination and persistence, emerging managers can still find success. As the industry continues to evolve, it will be interesting to see how these dynamics shape the future of venture capital.
