US VC Fund Performance, Q1 2024

Carta is the leading fund administrator for startups (and a portfolio company of Fabrica Ventures). It recently released a VC Fund Performance report, data as of Q1 2024, based on aggregated and anonymized metrics from 1,803 US venture funds currently using Carta Fund Administration.

As we know, the VC market has faced significant challenges since interest rates began rising in early 2022. Fundraising has slowed, and liquidity has become scarce due to both a decline in IPOs and subdued M&A activity. So, how have these conditions affected the most recent fund vintages? Here are the key highlights:

* Slow capital deployment: Funds from the 2022 vintage have deployed about 43% of their committed capital at the 24-month mark, the lowest percentage of any vintage analyzed. Earlier vintages deployed between 47% and 60% over the same period.

* Declining graduation rates: Only 15.4% of companies that raised a seed round in Q1 2022 advanced to Series A within two years, compared to 30.6% of Q1 2018 seed startups that achieved this milestone in the same timeframe.

* Elusive distributions to LPs: Less than 10% of 2021 funds have achieved any DPI (Distributed to Paid-In Capital) after three years.

* Negative median unrealized IRR: As of Q1 2024, the median unrealized IRR for the 2022 and 2021 vintages remains below zero.

* Increase in down rounds: Q1 2024 recorded the highest share of down rounds (23%) in the past five years.

Crunchbase has also published a survey of US startups that raised Series A funding and later closed a Series B round, and the results align with Carta’s findings:

* Extended time between rounds: In 2024, the median time between Series A and Series B was 28 months—the longest gap since 2012

* Fewer startups progressing to Series B: Of the more than 4,400 startups that secured a Series A in 2020 or 2021 — peak years for venture funding — just 1,600 (36%) have gone on to raise a Series B

Conclusion

Business cycles are like this: sometimes harsh, sometimes prosperous. This cyclical nature is one of the reasons why VC funds typically have a 10 year-duration. A bountiful period is on the horizon.