The H1 fundraising numbers were surprising and we’re still not sure what to make of them.
It looked like the sky was falling in the first quarter, with venture firms raising just $16 billion worldwide, the smallest quarterly total in about seven years. If that tepid pace continued, 2024 would have gone down as the worst fundraising year since 2014.
Now it appears that fundraising is getting back to normal. In Q2, firms pulled in a combined $33.6 billion worldwide, close to the $35.6 billion they raised in the same quarter a year earlier. If the Q2 pace continues for the next two quarters, the full-year total could come in around $120 billion, which would match the 2023 total.
There are other signs of improvement. For example, more firms are hitting their targets. (Our data is only for funds that disclose fundraising targets.) Just 42 percent of fundraisers hit their targets in 2023, down from about 50 percent in both 2021 and 2022. That figure bounced back up to 50 percent in H1.
Moreover, fundraising misses have declined. Just 27 percent of fundraisers missed their targets in H1, an improvement from 37 percent in 2023 and on par with the percentages seen in 2021 and 2022.
While those figures are encouraging, they might be the result of more firms opting to raise smaller funds or seek less capital than they did in prior years. For example, Index Ventures recently hit its targets for its 12th early-stage fund and seventh growth fund, raising a combined $2.3 billion. But the early-stage fund is $100 million smaller than its predecessor and the growth fund is $500 million less than Index’s previous growth vehicle, as we reported last month.
Another thing that should temper optimism is the amount of time spent marketing funds, which is about twice as long as it was three years ago. For funds that disclosed the month and year of their fundraising period, the average time on the road was 17 months in H1. That contrasts with an average of 15 months in 2023, 11 months in 2022 and eight months in 2021.
It is also worth noting that the Q2 fundraising numbers were boosted by some big closes, which we didn’t see in the first quarter. No firm closed a fund of $1 billion or more in Q1, but four firms did so in the second quarter: Norwest raised $3 billion for Norwest Venture Partners XVII, Flagship Pioneering pulled in $2.6 billion for Flagship Pioneering Fund VIII, Kleiner Perkins collected $1.2 billion for Kleiner Perkins Select Fund III and Evolution Equity Partners closed on $1.1 billion for Evolution Technology Fund III.
The biggest question mark for the second half of the year is the appetite of institutional investors, which has been constrained due to a sharp decline in distributions. More LPs are turning to the secondaries market to free up capital for new commitments. LP-led deal volume accounted for $40 billion of the $68 billion of global secondaries volume seen in the first half of 2024 as bid-ask spreads narrowed, according to Jefferies’ Global Secondary Market Review.
Noting that some LPs are overallocated to PE by as much as 40 percent, Jefferies wrote in its report, “This phenomenon creates the potential for significant selling activity from these large LPs over the next 12-18 months, especially if distribution levels remain low.”
If LPs follow through, they will have billions in fresh capital to commit.
Get all the data: Download our H1 Global Fundraising Report