The venture capital industry, once the engine behind some of the world’s most successful companies — such as Facebook, Uber, and Airbnb — and the creator of billions in value through unicorns, has now fallen into a period of striking quiet. For decades, venture capital was regarded as the holy grail for founders, following the well-known narrative and playbook ingrained in our minds since the early 2000s: have a great idea, raise capital, scale rapidly, ring the bell at the IPO — and boom, you are a millionaire or even a billionaire, right ?

Today, however, venture capital firms are closing their doors, while solo founders are bootstrapping businesses worth $100 million without raising a single dollar from VCs. Bloomberg recently reported that, in the US market, hundreds of smaller venture capital firms are struggling to secure capital in the current climate, with funding for emerging managers falling to $17 billion in 2023 from $64 billion in 2021. For many investors attempting to raise their first-ever VC fund, the outlook is bleak. With more than 25,000 general partners having raised a fund since 1990, it has become more difficult than ever to stand out. So far this year, first-time fund managers have secured only $1.1 billion, according to PitchBook.

Once celebrated as the epitome of innovation and ambition — cool, sleek, modern, even indispensable — venture capital was the fuel that powered some of the most transformative companies of our time. Today, however, the sheen has faded. Once the ultimate badge of entrepreneurial success, the asset class now faces questions about its relevance, its sustainability, and its future. What happened to this once-glamorous engine of growth? Let us take a deeper look and unpack the story.

The flow of capital into early-stage start-ups has slowed to a trickle. Figures from The French Tech Journal reveal a stark reality: in the first half of 2025, global VC investment totalled $139.4 billion across 13,361 deals — down from $183.4 billion a year earlier. That’s a 24 per cent collapse in just twelve months, with the average deal size hovering at around €10 million. The squeeze is most acute at the seed and early-stage end of the spectrum, where deal volumes have dropped by 18 per cent year-on-year and median valuations have slid by roughly 12 per cent.

Start-ups are also staying private for longer. The median age of companies raising Series D rounds is now close to 9.7 years, reflecting founders’ caution about going public. IPOs and acquisitions have become rare in recent years. In France, for example, both the number of funding rounds and the total amounts raised have fallen sharply — from 586 rounds in the first half of 2024 to just 288 in the same period of 2025.

Why is this happening ? First, many founders now see greater benefits in raising capital privately from private equity firms rather than going public. Private equity investors not only provide funding, but also bring expertise and global networks that can accelerate growth. While an IPO was once seen as the ultimate endgame for founders, today its pros and cons must be weighed with far more caution.

On the positive side, if a company meets what might be called the “beauty criteria” for the public markets, an IPO can unlock significant opportunities. These criteria typically include : a market capitalisation of at least $10 billion, annual revenues of $4–5 billion, a clear and straightforward growth trajectory, and a business model that is easily understood. For companies that tick these boxes, the stock market can be an exceptional platform for expansion.

However, those that go public without meeting these standards often face burdensome transparency requirements that can hinder future development. As a founder, you must recognise that the Wall Street arena is unforgiving. On the other side of the trade are hedge funds — and there is one thing to know about hedge funds : they do not hold back. If your business is unprofitable, lacks a credible path to profitability, or shows signs of an inefficient model, your stock will be punished, sometimes severely.

Many founders who raised large sums at inflated valuations have realised that, if they were to go public, their companies might not be ready for the intellectual scrutiny and operational benchmarks demanded by public equity investors — particularly those in the hedge fund world.

According to Forbes, the fundraising landscape is becoming increasingly concentrated. Europe, in particular, is facing a sharp divide; mid-2024 marked its weakest funding quarter in years, with smaller funds struggling to attract capital. The top 30 funds captured 75% of the $76.1 billion raised globally, reflecting a trend where LPs are becoming more selective, favouring established managers over emerging funds.

To understand this shift, let’s look inside the offices of the US venture capital firms clustered along Sand Hill Road in Silicon Valley — home to many of the largest and most influential players in the industry. In recent years, billion-dollar funds were routinely raised by giants like Sequoia Capital and Andreessen Horowitz. At the same time, top talent from these firms was breaking away to launch their own funds, raising hundreds of millions in fresh capital. Back then, LP allocations to venture capital were enormous.

From the post-recession period in 2010 through to 2021 — a span of just 11 years — the venture capital industry expanded at breakneck speed. Capital was relatively easy to raise, the number of firms multiplied, and deals flowed freely. It was, by all accounts, a gold rush for VC.

To grasp why LPs are now so selective, it’s worth revisiting the fundamental relationship between LPs and GPs. General Partners (GPs) raise capital from Limited Partners (LPs) — a group that can include high-net-worth individuals, large corporations, and family offices. LPs provide the capital with a simple expectation: returns, plus a premium. The GP’s role is to identify promising businesses, invest in them, help them grow, and ultimately exit — either through a sale or IPO — in order to return capital (and profits) to the LPs. This “liquidity event” is the engine that makes private capital work.

But in recent years, something has gone wrong at the IPO and distribution stage. The volume of capital raised for VC funds remains enormous — in both dollar and euro terms — yet the supply of truly high-quality businesses has not increased at the same pace. Importantly, GPs cannot simply sit on cash for a decade or more; they are obliged to deploy it.

Here lies the crux of the problem : many VC firms channelled funds into businesses with impressive products and apparent growth potential, but with fundamentally weak operations and negative cashflow. These companies were burning money year after year, sustained by unsustainable unit economics and immature business models. With a finite pool of quality companies and vast amounts of capital chasing them, valuations soared well beyond intrinsic worth. Investors began paying eye-watering multiples for cash-burning businesses. And, as Warren Buffett famously put it, “what goes up must come down.” When the tech sector crashed, venture capital followed.

Why ? Because when IPO markets collapsed, cash distributions back to LPs dried up. Without those returns, LPs were far less willing to commit fresh capital. As many said, in effect : “You’re not giving me my money back — so I’m not giving you any more.”

The result was stark. Capital commitments to VC funds — the amounts LPs pledged — fell by around 60% in 2023 and 2024 compared with the two years prior. That is a dramatic contraction by any measure.

Perhaps most worrying is the sheer number of VC firms shutting down. In the US, the number of active venture investors has dropped from roughly 24,000 in 2021 to just 12,000–13,000 today — a 55% decline in barely three years, according to recent data from Playbook.

Despite the industry headwinds, there are emerging sources of optimism :

• AI investments remain robust, securing standout rounds even as other sectors struggle.

• Successful IPOs, such as Figma’s flotation with a valuation exceeding $60 billion, have revitalised investor confidence.

• The secondary market is expanding, providing alternative liquidity options for both investors and founders.

• Certain regions and sectors — including defence, deep tech, and climate tech — continue to attract targeted inflows.

In conclusion, I believe LPs will increasingly concentrate their venture capital allocations with the large, well-established investors, such as Sequoia and Andreessen Horowitz, who have a proven track record and strong businesses. Conversely, smaller emerging managers and less-established funds will face significant challenges in raising subsequent funds.