Sophomore VC Fund Cattle Grid

The US VC market enjoyed a period of market exuberance from 2019 to 2021 (the zenith year). During this period, according to PitchBook, $29B was committed to 667 first-time VC funds (on average, 222 new first-time VC funds per year @ $43M size).

Historically, the time between first and second (sophomore) funds has fluctuated around two years. So, 2023 should have been a year of many VC managers raising a second fund.

This is because VC funds follow a common formula of investing their committed capital over 3 years and managing the underlying portfolio companies through the fund’s 10-year lifespan (typical durations). Usually, fund managers opt to raise a next fund before fully liquidating or exiting their present fund to increase their AuM and continue to invest in new startups. Hence, managers of first-time funds closed between 2019 and 2021 were likely to hit the fundraising market in 2023.

However, the lack of liquidity for the venture market over the last two years has led many LPs to reconsider their allocations to VC. The prolonged liquidity crunch has made LPs more cautious of deploying capital to VC managers without a strong track record or lacking a strong relationship.

As a result of the harsh VC exit market, investor capital that has flown into the VC ecosystem has increasingly clustered within large funds led by established managers, which has starved their emerging-manager peers.

Indeed, in 2023, only 12 US VC managers were able to raise a second VC fund – while, historically, around 63% of first-time VC managers that raised their debut fund went on to close a sophomore fund.

Conclusion

At Fabrica Ventures, we take pride in being among the selected 12.

We firmly believe that the way to build strong relationships is to have a high level of skin in the game, transparency, and skilled dedication.

We appreciate the continued trust; Fund II has already surpassed Fund I in size to capitalize on discounted opportunities in the secondary market.