A growing number of investment firms may launch their Champagne before the new year. Today, a group of investment companies announced new funds: Artis ProjectsBoxGroup, Playground Global and Singular all closed on funds, while… Partic It said it would launch a €360 million investment fund.
Against a backdrop of layoffs and continuing economic uncertainty, the announcements — especially in such quick succession — come as a shock. But they point to some basic facts about the market right now.
Institutional investors are still interested in venture capital as an asset class; With more rational valuations, they see 2024 as a good time to pump money into startups; They are also keen to maintain their relationships with investment companies that have delivered on some of their promises in recent years, especially after taking a break in 2023.
As Eric Hippeau, managing partner of Lerer Hippeau, told TechCrunch last year, when the company raised $230 million in 2022: In 2021, “[A]All the limited partners have been absolutely inundated with people raising two funds in one year or more than they normally would.
The question is to what degree limited partners have begun to loosen their portfolio constraints, and despite today’s flurry of financing news, the answer is far from clear.
“The fundraising environment remains difficult,” stresses Steve Chu, a partner at investment firm Portage. She believes what we are seeing is the result of continued interest in funds with strong track records and distributions on paid-in capital.
Karim Jalani, general partner at Luge Capital, agrees. Limited partners “will continue to support fund managers who believe they can not only select those companies consistently, but can enter into those deals when they are competitive,” Galani said via email.
Declining valuations may also attract the attention of institutional backers, whose portfolio managers may have overpaid for deals in recent years due to the frothy market — and who can, for now at least, get much better deals on talented teams.
“As a fund, if you have dry powder, now is a good time to deploy because the best historical releases in the project came from periods after the valuation reset,” Zhu said via email. “Some forward-thinking LPs are also looking at these same historical trends, combined with the broader macro economy (strong general market performance, calls for a soft landing, etc.), which could lead to renewed interest next year.”
Meanwhile, limited partners may not be responding so much to what’s around the corner in 2024 but looking across the longer horizon, especially given that venture funds typically invest over a 10-year period.
As Galani points out, many new fund announcements don’t necessarily suggest that 2024 will be a “buoyant year.” The most likely bet is that the project industry – which is always a cyclical business – will rebound steadily, and that this recovery will happen sooner rather than later.
Connie Loizos also contributed to this article.