It happened in 2016, and it’s happening like clockwork again in 2018: venture firms are closing new funds with more money than they ever have before, just two years after closing their most recent funds with more money than they’d ever raised before.
Last week, you may have caught wind that Khosla Ventures is raising up to $1.4 billion across an early-stage fund and gigantic seed fund. Battery Ventures also recently upped the ante, raising a fresh $1.25 billion across two funds. Meanwhile, Sequoia Capital is reportedly looking to raise $12 billion across a series of funds. (As the second-largest shareholder of newly public Dropbox, that pursuit just became easier, we’d imagine.)
Don’t expect the announcements to stop any time soon. Just today, the SEC processed paperwork showing that 18-year-old General Catalyst has closed a $1.375 billion fund, a vehicle that seemingly combines both the firm’s early- and growth-stage investments. That’s a huge leap over the capital commitments that General Catalyst circled in early 2016, when it closed a pair of funds with $845 million.
We’d expect a host of firms that closed their most recent funds around the same window in 2016 to be trotting out their own mega funds in short order. (Think Andreessen Horowitz, Accel Partners, Founders Fund, and Lightspeed Venture Partners, among others.)
Whether the trend is a reflection of the natural evolution of venture capital, or a race off a cliff, will play out over time. It’s famously challenging to return billion-dollar plus funds, which is why some firms, including Benchmark, won’t do it, no matter what demand from institutional investors looks like. (Benchmark has for years raised funds in the $425 million range after raising a single billion dollar fund during the dot.com days and deeply regretting the decision.)
For now, the venture firms may feel they have no choice. Worldwide interest in funding tech startups is as high as it’s ever been. And with a giant like SoftBank’s $100 million Vision Fund to compete with, firms that fund later-stage startups might argue they need to show up at the table with bigger checks than ever.
At least, for better or worse, they want the ability to write them.