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May 30, 2024 | Tom Ballard

One person’s prediction: As many as half the VC firms will fade or fail

That's according to Josh Wolfe, Co-Founder of Lux Capital.

Here’s a sobering thought: a prominent Venture Capitalist has predicted that as many as half the venture capital (VC) firms will fade or fail. That’s according to this article, written by Steve Goldstein and published in MarketWatch, operated by Dow Jones & Co.

It quotes Josh Wolfe, Co-Founder of Lux Capital, who says the contraction will be driven by both fractured partnerships as well as what he calls “feckless” strategies that are too weak to fix. He also cites concerns that investors have overcommitted to an illiquid asset class.

In the company’s first-quarter letter to shareholders, Wolfe noted the industry has grown from roughly 1,000 firms in 2008 to over 3,400 today, which he expects to contract to some 1,700 in the next few years, with many minnows and a few “megas.”

What he defines as minnows – funds with under $100 million in assets – will struggle to raise a second fund, while the bigger funds will have to contract their outsized fund targets as they face “disinterest, disapproval or indigestion from allocation.”

Wolfe said just two established firms accounted for nearly half the capital committed this year. He also said down-rounds in U.S. VCs made up nearly 25 percent of financing.

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