Oren Zeev observes that it's much harder for funds to raise capital today. Not only is there less money flowing into venture, but a larger portion is going to established platform funds. He predicts that at least 50% of current VC funds will be unable to raise their next fund and will slowly die.
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The VC landscape has split into two extremes. A few elite firms and sovereign wealth funds are funding mega-rounds for about 20-30 top AI companies, while the broader ecosystem of seed funds, Series A specialists, and new managers is getting crushed by a lack of capital and liquidity.
The primary growth drivers for private equity—sovereign wealth and private wealth channels—prefer concentrating capital in large, brand-name firms. This capital shift starves middle-market players of new funds, leading to a likely industry contraction where many may have unknowingly raised their last fund.
Many sub-$500M venture funds are over-invested and under-reserved. While venture capitalists like Josh Wolfe predict a 50% failure rate for these "minnows," the Limited Partners (LPs) who fund them are even more bearish, believing the involuntary extinction rate will be closer to 90%.
The current fundraising environment is the most binary in recent memory. Startups with the "right" narrative—AI-native, elite incubator pedigree, explosive growth—get funded easily. Companies with solid but non-hype metrics, like classic SaaS growers, are finding it nearly impossible to raise capital. The middle market has vanished.
LPs are concentrating capital into a few trusted mega-firms, leading to oversubscribed rounds for top players. Simultaneously, a decline in deal formation and liquidity is causing a potential 30-50% "extinction rate" for smaller, emerging managers who are unable to raise subsequent funds.
The seed investing landscape isn't just expanding; it's actively replacing its previous generation. Legacy boutique seed firms are being squeezed by large multistage funds and new emerging managers, implying a VC's relevance has a 10-15 year cycle before a new cohort takes over.
While overall venture fundraising has declined, a16z's massive new fund highlights a market bifurcation. Large, established platform funds continue to attract significant capital and consolidate power, while smaller and emerging managers find it increasingly difficult to raise money.
The AI boom is masking a broader trend: venture fundraising is at its lowest in 10 years. The 2021-22 period created an unsustainable number of new, small funds. Now, both LPs and founders are favoring established, long-term firms, causing capital to re-concentrate and the total number of funds to shrink.
The venture capital landscape is bifurcating. Large, multi-stage funds leverage scale and network, while small, boutique funds win with deep domain expertise. Mid-sized generalist funds lack a clear competitive edge and risk getting squeezed out by these two dominant models.
The majority of venture capital funds fail to return capital, with a 60% loss-making base rate. This highlights that VC is a power-law-driven asset class. The key to success is not picking consistently good funds, but ensuring access to the tiny fraction of funds that generate extraordinary, outlier returns.