There are several contributing factors to venture’s performance decline, many of which carried over into 2023 from 2022. A lackluster exit environment and valuation resets (particularly at the later stages, driven by public comps) persisted. Carta data shows that, across all stages, the number of down rounds increased meaningfully in 2023 as a percentage of total financing rounds, supporting the idea that investors have become more scrutinous. 2023 also saw a 174% increase in U.S. bankruptcy filings by private equity- and venture-backed companies, with storied WeWork’s filing being one of the largest. Carta reported that among its customer base, the number of startups that shut down in 2023 increased nearly 60% year-over-year.

Despite the pullback over the last two years, venture capital performance over the last decade and beyond remains strong. Upper quartile since inception IRRs for vintages 2008 through 2019 are consistently above 20%, with most upper quartile multiples of capital (TVPI) in those same vintages coming in above, and in some cases well above, 2.5x net multiple.

Many limited partners view the current opportunity to invest in venture capital as an attractive one. With exciting innovation, fast-moving technological advances, more rational valuations, and attractive long-term returns from the top venture funds supporting the case to invest, limited partners are simultaneously facing less attractive short-term returns and two years of negative cash flows (where contributions have outpaced distributions). It’s an intriguing juxtaposition between the sobriety and the magic of the moment.