The U.S. venture capital industry seems to be a tale of two realities: On the one hand, firms investing in AI, for which all is well, and on the other, everyone else, for which it isn’t. Multiple reports have given us data about how the industry is progressing compared to the inflated pandemic years and the pre-pandemic norms. But what is it really like to be in the VC trenches? To understand what’s going on behind the numbers, Juniper Square surveyed 85 industry practitioners, most of which were investment professionals, asking questions like, What are you most concerned about when it comes to raising capital? What is the most memorable comment you’ve heard from an LP about the state of VC? And What are you watching most closely to see how the venture fundraising market will play out?1 These venture professionals gave us an insider’s view of the current state of VC, allowing us to compare this year’s findings with the results of our 2023 survey.
Fundraising in 2024
In our 2023 survey, most respondents (63%) planned to raise capital, but two-thirds of respondents believed the process would be more difficult than the year before. Since 2023, when U.S VC firms closed a mere 474 funds with a meager $66.9 billion, was the worst year for VC fundraising since 2017, those respondents were correct in their wary assessments. This outcome has likely influenced their opinion on the state of fundraising this year, with the majority of current respondents (80%) believing fundraising would be at least as difficult as last year, if not harder.
The top three concerns around fundraising addressed LP interest and capability, rather than externalities such as election-related uncertainty or regulatory changes. Investor sentiment and Lack of LP liquidity tied for the top spot, while Lack of exit activity came in second. In short, LPs are tired of waiting for illusory exits—they want their GPs to stop dreaming of a return to 2021, clean up their portfolios, and move on. As one respondent reported being told by an LP, “Hold on to your best companies and get rid of everything else.” This is not the first time GPs have had to prune their portfolios so severely: in 2002, one tech GP in a top-tier VC fund said, “Having me on the board of a pre-revenue technology company is akin to putting a For Sale sign on the front lawn.”2
These concerns have generated big swings on the GP side, creating a dynamic of haves and have-nots. Our venture clients with the longest, most impressive track records are still closing large funds quickly (Felicis raised $800 million in less than three months), but the success rate of a first-time fund manager trying to raise capital is much lower. As a result, managers of second funds and beyond are eager to find exit opportunities to return capital to LPs sooner and are scaling down their fund size goals for future fundraises. Just over half of survey respondents (53%) told us they expected to raise a new fund in 2024—compared to 63% last year—but most of these (64%) are planned to be under $100 million.
GPs keenly understand the importance of exits in restarting the fundraising process. Exit activity & value was the top item cited (88%) as an indicator of the VC fundraising market.
The elusive exit
For a second year in a row, the game of exit chicken continues. Investors, potential purchasers, and CEOs continue to play stare-down as the clock ticks toward zero on fund lives. Continuation funds have produced some liquidity, but they tend to be one-off, custom transactions, while secondary funds are still a small part of the market. While the IPO pipeline is (hopefully) beginning to move again—Astera Labs and Reddit were a few bright spots in Q1 2024—more success stories are needed to free up investor capital.
When we asked VC GPs about LP priorities, their answers focused on getting companies prepped and out of the portfolio. Of the top five areas of LP interest that our respondents identified, four involved some element of managing companies toward exit. The blatant Finding exit strategies for companies led the list with 83% of the comments, holding onto its top spot from 2023. Adding value to portfolio companies was second, at 50%, and Getting your companies more profitable received 38% of mentions, placing it third.
The most surprising change year-over-year was 2023’s number three—Entry point valuations—which this year came in dead last (number 11), possibly reflecting reduced GP investment activity.
Our respondents reflected these concerns when ranking their priorities for improving LP relationships in 2024. Aligning with LPs on the existing portfolio's value creation/preservation strategies ranked as the first or second priority for 76% of respondents. Aligning with LPs on risk tolerance for new investments ranked as the third priority (24%).
Back office matters still warrant attention
While Portfolio monitoring and reporting was a priority for investment management technology in 2023 and 2024, the importance of the topic soared this year—81% of respondents declared it a top priority, up almost 30 percentage points from 2023’s rating.
GPs did, however, report inadequacies in their operations, particularly around communication and reporting to LPs. Over a third (35%) of respondents cited these topics, whether communication in general or portfolio company reporting in particular, as major sources of operational difficulties. Adding specific mentions of “fund administration,” a broader perspective on communication and reporting, boosted this topic to 45%. When we included sub-topics of typical fund administration work (compliance, data organization and integration, and cross-team handoffs), 60% of respondents reported substantial pain in this area.
Similarly, when GPs were asked about their priorities for improvements in investment management technology, communication-related capabilities topped the list. Of the four leading options, three involved communications: Portfolio monitoring and reporting (first with 80%); Investor reporting (third with 42%); and LP consumer relationship management (tied for fourth with 35%). Fundraising-related technology came in second, mentioned by 46%.
The other priority chosen by 35% of respondents was Security. This was a surprise, as that topic was ranked fourth or fifth by a vast majority when we asked GPs about their priorities for improving relationships with existing LPs. Yet a specific question on concerns about cybersecurity found that 42% of respondents said they were quite or very concerned about the topic. It may be that cybersecurity in isolation is viewed as more important than when it’s considered more generally.
How to thrive in ‘25
Since 2023, the VC industry has been anxiously awaiting rock bottom and the promise of a rebound. With the new year only a handful of months away, the pressure is on for GPs not just to stay alive but to get ready to (hopefully) thrive in the upcoming year.
When asked, “What are the most important things for your firm this year?”, the top reply was Finding successful exits for portfolio companies. The next was Monitoring portfolio company performance, and the third Building better LP relationships. These are self-reinforcing: monitoring company performance positions them for a successful exit; exits create liquidity, and liquidity improves LP relationships.
GPs are not blameless in the exit logjam—they bought companies at inflated valuations and keep hoping for the stratospheric returns of yesteryear. But to liquidity-constrained LPs, any returns are better than none.
Our respondents also shared some LP comments that can set GPs up for success.
Manage the portfolio to exit. LPs have become more sophisticated and cynical. They want exits and liquidity. One GP recalled an LP’s comment that they “don’t believe the valuation marks and want to see more liquidity before committing to a new fund.” More generally, the LPs want GPs to pare their portfolios and focus on the big winners. As noted in our 2023 report, the time that board members spend on struggling companies is time that the GPs could otherwise spend finding the next winner.
Stick to your knitting. VC is a cyclical industry. That was hard to believe when it hadn’t gone through a down cycle since 2001, but that lesson has been delivered like a wet slap. GPs need to keep an eye on innovation while continuing to forge ahead. In the 1990s, the Internet kicked off the start of a new super-cycle; in the 2000s, it was cloud. Now, according to Meghan Reynolds of Altimeter Capital Management, it’s AI. VC firms need to position themselves to get unique access to the best deals—just as they’ve had to do throughout history.
Behave in a true partnership fashion. Again, creating a true partnership with LPs can help a firm survive many turbulent events. Transparency at the firm and fund level and prompt delivery of accurate information positions a firm for long-term growth.
Venture capital investing is no longer like shooting fish in a barrel. In final comments, one respondent summed up the general sense of wary optimism for the coming year: “Fundraising will feel easier than in 2023, but it will still be difficult due to external dynamics and past factors that continue to impair prior funds’ current performance metrics.”
But by facing reality, pruning their portfolios and focusing on building strong and transparent relationships with LPs, VC funds can position themselves for success in 2025. “Now is the time to invest in the space,” commented one respondent, and another noted, “The COVID pandemic limitations and mindset are finally in the rearview mirror.” As the VC industry emerges from the froth of 2021 and 2022, its practitioners know better. Throughout 2024, they can learn from their lessons and prepare to thrive in ’25.
1 For many questions, multiple selections were allowed.
2 Josh Lerner & Ann Leamon, Venture Capital, Private Equity, and the Financing of Entrepreneurship, (NY, NY: J. Wiley & Sons, 2024): p. 235.