A Shortage of Investment-Ready Startups Is Creating VC Anxiety

Founders who are building future growth stories will be in great demand.

VC as an asset class has outperformed in recent years. Investors (known as Limited Partners or LPs) have been piling in as valuations have moved relentlessly upwards. Huge new funds have been raised to support companies staying private for longer and there is a record amount of dry powder in VC coffers.

But these upbeat trends disguise a steep decline in deal numbers, made worse by Covid. Lack of quality deal flow and increasing competition is starting to cause investor anxiety and may pose a threat to the very existence of certain funds over the longer term. This presents an opportunity for founders.

First-time fundraisings have reached a new low.

Even before the pandemic deal numbers were slowing. With greater uncertainty over the macroeconomic climate and a glut of deals over recent years, investors were already taking stock. There was a deliberate shift away from early-stage to growth stage and late-stage businesses.

Larger fund sizes over recent years fuelled this trend and enabled investors to focus on less risky bets. Then the pandemic hit and acted as a huge but unplanned…