I'm in an adjacent space so quite interesting to me. Couple of concerns:

1) This Fund+Roman Numeral notation is universal among funds. Meaning this data isn't VC. It's use of fund structures. Real estate, PE, private credit maybe bit of hedge funds etc...and yes also VC.

2) Filling trends are affected by jurisdiction fashions so to speak. One of the big fund jurisdiction makes a small rule tweak and everything pivots there. Or away. The funds we're setting up today are structured differently and in different jurisdictions than 2 years ago. Same for regional focus. Think about what that does to a single jurisdiction trend analysis like this.

3) The spike coincides pretty neatly with covid, lockdown and that sudden injection of cash trillions into the financial system. So a spike in fund entities registered makes sense. Haven't looked at who got those trillions, but I'd wager it was bigger institutions not young VC operations starting their first fund.

Still the core hypothesis seems sound for funds overall. Regardless of type a lot of these funds will indeed be on a 2-4 year investment period. So it does broadly check out that there might be a softening of funding supply coming up.

Bubbles are largely a function of finance, not tech; if there is a lot of easy money available, it wants somewhere to go, and any tech will do (recall XML startups...).

Interest rates are one of the biggest factors, because of how they create indirect pressure on cash availability (which is the whole point of raising interest rates).

Everyone is bracing for tariff recession as well, which may cause a lot of investment capital flight.

As someone else mentioned just looking Fund+Number doesn't exclude non-VC funds. However, the 2024 NVCA report supports the OP's thesis: see page 17: https://nvca.org/wp-content/uploads/2024/05/2024-NVCA-Yearbo...

Most Fund I’s are going to be smaller funds, often $9.99MM to allow for a larger number of smaller LPs due to the $10MM threshold from the SEC. Whereas Fund II-IV are going to be considerably bigger, often hundreds of millions of dollars. So a large number of smaller funds falling off won’t make that big of a dent in the total dollars available, but may make it harder to get the smaller initial checks.

I think everyone knew, even without looking at any data, that startups were in a bubble thanks to Covid, when every "shoeshine boy" was studying to be a webdev at a start-up.

Like how many food delivery apps that are actually profitable can the economy handle?

(I don't think this would change the overall message of the analysis), but one reason why the "Fund I" bump might be so pronounced compared to other reports is because of the "SPV as a service" data that was hinted at in the takeaways.

It's very common for these single-asset SPVs to be titled, "[Abbreviation] Fund I" -- but these aren't really the same type of "Fund I" as a multi-security venture fund run by a professional manager.

E.g.: (1) These are entities that are sort of arbitrarily titled "Fund I" as part of a template naming convention, but there's not as much of a direct expectation that they'll have a corresponding Fund II, III, etc. (2) Whether they do is more of a function of the underlying portfolio company raising a subsequent financing and giving the same SPV manager an allocation (which small time SPV managers often don't get pro rata for), rather than the fund manager's ability to raise a subsequent blind pool fund II.

VCs were literally pitching to startups to take their money during the pandemic (there were several articles about that at the time). That nonsense will now come home to roost as companies that took money at those hyper-inflated valuations will now need to face reality.

LPs that let their money get tied up in such nonsense are also about to head into a world of pain. I fear the present AI bubble will only exacerbate the pain as both sets of bad investment decisions come crashing down around the same time.

Not that it would drastically change the conclusions, but do the numbers for "fund i" include the forms that say "fund ii" etc (by virtue of the fact that "fund i" is a substring of "fund ii" etc)?

Interesting to see how Form D filings track shifts in fundraising activity. From our experience, founders are also adapting their pitch deck narratives depending on whether capital is flowing or tight. It’s fascinating how much presentation strategy mirrors these macro trends.

It is a concern that this could simply reflect changing naming conventions for private funds. There is nothing that requires a fund to use the "Fund I" convention.

Would it be possible to confirm the trend using Form ADV instead of Form D filings?

This is pretty cool for a simple analysis. Would love to see v2 with some of the suggestions others have made regarding filtering, catching SPVs or non-“fund” etc.

Can you query based on exemption used?

Good, many bad companies will release good developers to work on more productive things. It's healthy for everyone.

i'm an early-stage vc - the author's analysis on "number of funds" (specifically VC funds) is accurate. the overall volume of venture allocation has also slowed considerably if not decreased (which is totally expected in a higher interest rate environment).

2021-2022 was a total blip on the screen zero interest rate era thing.

i'm not seeing considerable slowing of new startup development, quite the opposite actually w/ AI. this is for a few reasons:

- accelerators are filling the gap; the accelerator model is actually quite efficient in the early-stage spectrum (it needs some further innovation). there are a huge number of AI accelerators and programs now; and further

- most of the capital going into VC is just being further concentrated into the large Multistage firms like A16Z, Accel, Sequoia, General Catalyst, etc... all of these firms are realizing they need to win deals as early as possible so have multiple seed programs: accelerators, incubations, scouts, fund-of-fund allocation, geographic funds, university focused sub funds, etc...

- overall great founders & startups are truly just exceptional so statistically there just won't ever be that many. venture will always be a cottage industry of sorts. in this form - "venture" equates with "growth"; there can only be 1 category leader by definition and venture is meant to capture this. 2021-2022 overall venture market was too big.

- AI is making startup creation many multiples more efficient. we saw this w/ the advent of the cloud, where startups used to need $2-3M "to buy servers" and 2-3 years to ship a product in 2010, by 2015-2020, they really only needed $3-500k to get a product to market. we're going to see that number come down considerably (unsure if it will be 30-50k, but definitely a lot lower).

- we're also seeing the new wave of the 10-person unicorn (billion $ company); these companies will raise a lot less cash, so will result in higher multiples on the original investment.

- i think the overall distribution of returns will look different on a portfolio basis in 2025-onwards. with power law, we expect to see super long-tail concentration on the 1-2 companies that yield 99% of the return to a portfolio, but i suspect we'll start to see some mitigation of that effect with more companies yielding positive outcomes. this might mean that there's less of a reliance on portfolio construction to generate risk-adjusted returns and that there could be more of a democratization of early-stage investing where we see 10-100x the number of startups and founders. that warrants a longer analysis, but as someone just bullish on startups and everyone being a founder that possibility is very exciting to me.

Not to be too ageist but the author appears to be a Stanford college student? Interesting thoughts but also feels kind of naive in that it is using a lot of assumption of a logical market, which is kind of adorable in a world where investing has devolved into a hype gambling market where Tesla has become a meme stock.

Perhaps financing is also dropping off because COGS is near zero now. Anyone with a vibe-coding LLM, some basic knowledge to correct the code, and a bit of common sense product management can launch a product. OpEx is cheap and aligned to usage. Gold age for builders.

Oof that title. Particularly when the site design is so substantive!

I've edited it to use what I think is representative language from the article itself. (This is to allow it to spend more time on HN's frontpage, because the article itself deserves it.)

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