So according to Pitchbook, which collects a massive amount of VC data, VC funds themselves hit a 10+ year low in paper returns this past quarter. In fact, returns plummeted to -20% (!)
Yes, that’s as bad as it sounds.
And this is a big deal, because VC’s own investors, “Limited Partners” or LPs, are under pressure here as a result. That means they are giving less money to VCs to invest further. It’s led in part a big overall slowdown in venture. Not just because of the Unicorn Crash, or falling valuations, but simply because returns have fallen so far, so fast, that LPs are taking a big pause or way slowing things down in many cases.
Having said that, you have to be careful viewing venture in too short a timeframe, and in looking at paper returns.
As rough as 2023 is for LPs, 2021 was insane the other way. Top LPs had 95%+ returns!!
The best startups are still growing revenue at strong rates, if not the crazy pace of 2021. And IPOs have slowly restarted. And the U.S. economy is still strong.
But the Unicorn Overhang is going to Cloud late-stage funds especially, driving down paper returns and cash distributions. For now, they are at a 10-year low. 2 years ago, they were at a 15+ year high.
The pendulum swings pretty violently here in venture. But as founders, we just keep on building.