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How venture capital is changing, and why it matters

Venture capitalists are bankers with better branding.

Friends and I traded that joke back and forth in the 2010s. A fiscally cautious response to the Great Recession contributed to a slow, if steady, economic rebound, spurring central banks around the world to maintain historically low interest rates. This cheap-money era motivated money managers to chance ever-riskier asset classes.

Big money flooded funds focused on every stage, from a startup’s first check all the way to its IPO.

Money managers everywhere sought a piece, as has reported, from pension funds to sovereign wealth funds.

University endowments did too, which transformed higher education. As recently as the 1960s, there was only a modest difference in the resources between the most prestigious institutions and more public ones, according to research by Stanford’s Caroline Hoxby. Then elite schools began aggressive and effective money management. Today, an entire half of the $800 billion in institutional endowments is held by just 20 universities — Harvard, Penn and Princeton among them. Hedge funds with mascots.

All this money washed into ever more and ever-larger VC funds. Yet until the pandemic, Americans were starting fewer and fewer companies. More cash chasing fewer companies birthed hundreds of so-called unicorns. Another outcome? The high-flying status of swash-buckling VCs. Leaving the spreadsheet-waving nerds in the office, VCs took to conference stages and podcasts. Debuting in late 2009, mass-market breakaway reality TV success “Shark Tank” defined the era by ushering entrepreneurs into a dark room with dramatic sound effects to grovel before a panel of celebrity investors.

It seems now the arc is bending a different way. Between March 2022 and July 2023, the Federal Reserve Bank increased its benchmark interest rate faster than it had since the 1980s — making money more expensive to slow down a red-hot economy (which it appears to be successfully doing).

Along the way, safer asset classes like US treasury bonds looked juicier, and the valuations of tech companies that depend on the attractiveness of future earnings collapsed.

Suddenly, in the daylight of a post-cheap money hangover, venture capital looks less attractive. Smaller funds and stricter terms followed. As has reported, the number of deals and size of funds shrunk — see our analysis of the most recent Venture Monitor reports for Baltimore and Philadelphia and Pittsburgh and DC. Starved of easy money, startup founders were yanked from growth at all costs to a path to profitability.

Here marks a new era of venture capital: from relative obscurity to finance’s cool kid all the way to a more sober and disciplined approach. Or so I heard from Roberto Rodriguez, the San Diego-based founder and general partner of healthcare focused Sequential Ventures.

“VC could use some humility,” he told me earlier this month at SXSW, the sprawling tech conference at which cities around the world boast their innovation cred. He joined a panel I moderated that also included Investors of Color managing partner Eli Velasquez and my old friend Archna Sahay, Head of Venture Platform at Northwestern Mutual Future Ventures.

We were inside an Austin, Texas, bar that served as the Amplify Philly House and were brought together by the University City Science Center, a nonprofit dedicated to nurturing the growth of life sciences startups.

Over an hour, we held the attention of a few dozen conference goers, even with the sway of an adjacent open bar, to answer: What do entrepreneurs, and their supporters, need to know about how venture capital has changed?

We hit on four main points:

  • VC fundraising has gotten harder
  • Entrepreneurs need to be more selective in investor pursuit
  • Capital is slowly getting more accessible
  • Not all demographics are growing the same

Media Contact:

Kristen Fitch Headshot 2024

Kristen Fitch

Senior Director, Marketing