What's Really Happening in Venture Fundraising: Insights from Both Sides of the Table

If you're preparing to raise your next fund, you've probably been poring over the latest benchmark data. I've been spending time with it too, and I wanted to share some thoughts on what I'm seeing—and what it might mean for your conversations with LPs.

The Performance Story: It's All About Dispersion

Here's something that really stands out when you look at the 2014 vintage (now 11 years old):

1. Top quartile: 23.32% IRR

2. Median: 15.74% IRR

3. Lower quartile: 8.48% IRR

That 15-percentage-point spread is significant. For an LP committing $50M, it's the difference between a truly transformative outcome and a modest return.

What this means for you: LPs are increasingly thoughtful about manager selection. It's less about whether venture capital as an asset class makes sense, and more about whether you specifically can deliver top-quartile returns. That's the conversation worth preparing for.

If You Raised in 2020-2021: Let's Talk About It

I know this is a sensitive topic, but it's worth addressing directly. If your Fund II was a 2020-2021 vintage, you're probably looking at:

1. Limited DPI (distributions are likely under 0.10x)

2. IRRs that look okay on paper but rely on unrealized marks

3. Entry valuations that may never be recovered

Here's how I've seen smart GPs handle this:

Acknowledge it honestly: "Fund II invested during peak valuations. We understand the challenge."

Show what matters beyond the marks: Revenue growth, path to profitability, customer metrics that suggest real value creation.

Frame the opportunity: "Fund IV is investing at entry prices 40-60% below our Fund II cost basis. History suggests the best returns come from disciplined deployment in challenging markets."

Some GPs are turning this into a strength: "We learned from investing at peak. Now we're deploying at trough—just like the 2009-2011 funds that generated 30-45% IRRs."

European GPs: Your Moment Has Arrived

The data here is striking:

Europe Developed VC (USD):

1. 1-year: 14.61% vs. 11.44% for US

2. 5-year: 18.03% vs. 15.00% for US

3. 10-year: 17.22% vs. 13.06% for US

If you're a European GP raising from US LPs, you have something powerful to talk about: your market is outperforming.

Some thoughts on positioning this:

1. Lead with the data (it speaks for itself)

2. Talk about valuation discipline—European Series As at €30M while US comps were $100M+

3. Emphasize capital efficiency—your companies reaching profitability on less capital

4. Be honest about challenges: thinner exit markets, but frame this as forcing better unit economics

For US GPs: You'll increasingly need to explain why you're not investing in Europe I suspect.

Fund Size: Finding Your Sweet Spot

The data shows something interesting about fund size. Looking at 2017 vintage:

1. Under $50M: 14.12% IRR

2. $50-150M: 21.57% IRR (the sweet spot!)

3. Over $150M: 18.58% IRR

There seems to be a Goldilocks zone around $50-250M—large enough to build a real firm, but not so large that deployment pressure compromises discipline.

If you're thinking about doubling fund size, expect LPs to ask: "Why do you need twice the capital? Won't this push you later-stage or dilute returns?"

Your answer needs to be concrete and specific to your opportunity set, not just "LPs want to write larger checks."

The DPI Question Everyone's Asking

This might be the most important metric right now:

Recent vintage DPI:

1. 2021: 0.03x (3 cents returned per dollar)

2. 2022: 0.06x

3. 2023: 0.01x

Compare to mature funds:

1. 2011: 2.95x DPI (nearly fully distributed)

2. 2012: 2.70x DPI

LPs need cash flow—for their own distributions and for new commitments. Paper gains don't solve that problem.

If you have low DPI (and most GPs do right now), here's an approach that seems to resonate:

"Our DPI is currently 0.8x after 6 years. The IPO market closure in 2022-2023 delayed exits by 18-24 months. But here's our liquidity pipeline for the next 24 months..." [then get specific about 3-4 expected exits]

If you're fortunate enough to have strong DPI already, lead with it. It's your biggest competitive advantage right now.

Talking About Public Market Comparisons

The mPME data (how VC performs vs. public markets) isn't particularly flattering:

US VC vs. S&P 500:

1. 1-year: -377 bps

2. 5-year: -166 bps

3. 10-year: -66 bps (basically matched)

4. 20-year: +126 bps

LPs are asking: "Why pay 2-and-20 to match the S&P 500?"

Here's how I think about responding:

Emphasize dispersion: "The median fund might match public markets, but top-quartile funds delivered 23.32% IRR vs. ~13.5% for the S&P over the same period. The question is really about manager selection."

Portfolio construction: "VC isn't meant to replace public equities—it's about completing a portfolio with uncorrelated returns and access to private company growth."

Time horizon: "VC's alpha emerges over longer periods—which aligns perfectly with endowments and foundations."

Be thoughtful and honest. The data is what it is.

Sector Focus: Knowing Your Story

The company-level data shows clear sector patterns:

Strong performers (2018-2023):

1. Software/Services: 20-35% IRRs

2. Fintech: 15-35% IRRs

3. Information Technology: 15-30% IRRs

More challenging:

1. Consumer/Retail: 5-22% IRRs (highly variable)

2. Healthcare/Biotech: 15-30% IRRs (longer timelines)

3. Energy/Climate: Often negative returns

Whatever your sector focus, you need a clear point of view on:

1. What's different about your approach

2. Why you have an edge in sourcing or value-add

3. How you think about risk and portfolio construction in your category

Generic positioning doesn't work anymore. Specificity matters.

Final Thoughts

You're not raising capital for "venture capital as an asset class." You're raising for your specific fund with your specific strategy at this specific moment.

The data can support your story, but it can't be your story.

Focus on what makes you different.

The GPs who successfully raise in this environment won't be those with perfect track records—they'll be those who can articulate a compelling, differentiated thesis and back it up with evidence.

What resonates with you from this data? What are you seeing in your own fundraising conversations?

I'm always interested in hearing from fellow GPs navigating this environment. We're all learning together.