Venture capital is full of distribution deadbeats
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Illustration: Brendan Lynch/Axios
It's no secret that limited partners in VC funds are frustrated by a lack of distributions. Now we have some data to back up their complaints, and it's brutal.
By the numbers: Nearly one-third of VC funds raised in 2017 — over six years ago — had yet to return any money to their investors through the end of March 2024, according to Carta.
- The numbers are even worse for 2018-vintage funds, as is to be expected for newer vehicles, with just 57% having made distributions.
- It's as if a refusal of startups to go public — enabled by VCs who prefer to be "founder friendly" than fiduciaries — has had consequences.
Zoom in: There are lots of explanations/rationalizations for this putrid performance:
1. The Biden administration is at fault, through heightened antitrust scrutiny that's tamped down on M&A activity.
- It's certainly true that some Big Tech buyers are being more circumspect, but U.S. M&A activity in 2024 is up 29% year-to-date, per LSEG. This includes a 39% bump for "high technology." The only major U.S. sector with a significant year-over-year decrease is health care.
- And this doesn't have anything to do with the dearth of IPOs.
2. VC funds are recycling, rather than distributing.
- This may be true, although its impact seems belied by other Carta data showing median TVPI of 2017 funds at 1.78x and of 2018 funds at 1.37x.
- If recycling if being done to boost paper returns, but they still remain below 2x after seven years, is it working?
- For context, the S&P 500 is up 147% since the beginning of 2017 and up 106% since the beginning of 2018.
3. LPs are being impatient.
- Lots of these funds are probably early-stage, and 2017-vintages could have committed a lot of capital in 2020 or even 2021. In other words, they shouldn't have distributions.
- Admittedly, Carta didn't break down this data set by stage focus. So maybe we give a pass to some of these funds, although my memory of 2017-2018 was that VCs were signing checks almost faster than they would be printed.
The bottom line: VCs overpaid for lots of companies before the pandemic, and a group of distribution deadbeats still haven't come to grips with it.
- The only real question is if LPs will hold them to account, leading to a significant industry shakeout.
