Norwest Venture Partners just raised $2 billion for its biggest fund ever to keep up with skyrocketing Silicon Valley deal sizes

• On Thursday, Silicon Valley venture firm Norwest Venture Partners announced its fifteenth fund - its largest to date. The $2 billion fund will be used across the firm's current range of geographies and industries.
• Norwest managing partner Jeff Crowe told Business Insider that the fund's size is partially due to the growing size of funding rounds. Today's pre-seed check is the same size as a Series C check 15 years ago, he explained.
• Even with the new funds, Crowe predicted that Norwest and other venture firms will stop pushing entrepreneurs to grow at all costs, burning venture dollars as they go, because the current slate of tech IPOs - and the WeWork debacle - showed the public markets did not like that approach.
• Crowe said the fund will work across the firm's consumer, enterprise, and healthcare teams in the United States, India, and Israel.
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The days of growing at all costs are over, according to Norwest Venture Partners managing partner Jeff Crowe. But his firm just raised its biggest fund ever to back entrepreneurs that can balance growth with profitability.

On Thursday, Norwest Venture Partners announced the closure of its fifteenth fund, its largest to date. The $2 billion fund doesn't signal a change in investment strategy, but rather an attempt to keep up with the ever-growing check sizes in Silicon Valley investment deals.

"Today, seed-stage checks are what a Series A check was 5 years ago, and a pre-seed check today was a Series C check 15 years ago," Crowe said. "That's why you see us raising a larger fund and other funds raising larger funds."

Silicon Valley's ever-growing warchest has fueled speculation of an impending bubble burst for the last few years, with overhyped, unprofitable startups as proof that the startup world has been living in a bubble that is due, at any minute, to pop.

The most telling recent example is the debacle around WeWork's aborted IPO, where it turned out that Softbank had pumped billions of dollars in venture funding into a company with no clear plan for achieving profitability - raising concerns among Valley investors that the grow-at-all-costs mentality was creating ultimately unhealthy companies.

Further proof came from the flops that were the Uber, Lyft, and Slack public offerings. All of those companies had raised billions in venture funding based on strong growth, but their profitability - or lack thereof - failed to impress Wall Street.

Crowe believes this disconnect between financiers on the coasts might be enough to shock Silicon Valley back to reality.

"Even if an entrepreneur is raising as late-stage venture round, they get counsel that it's not just growth at all costs now," Crowe said. "You're seeing it now that public markets don't like that strategy. I just don't think that investors are going to put up with that anymore."

Growth, but not at all costs

That $2 billion, then, will go to entrepreneurs that set their sights on reasonable growth without sacrificing profitability, Crowe said. The firm diversified itself 12 years ago, and now has dedicated teams investing in consumer, enterprise, and healthcare startups across the United States, India, and Israel. The teams work out of the single fund, unlike other firms that raise separate, dedicated funds for each sector. But with the fresh funding, those teams have more freedom to write bigger checks in either follow-on or new late-stage rounds, Crowe said.

"We want to do more late-stage investing and growth equity deals," Crowe said. "But when we write those checks, those can be $50 million, $75 million, or even $100 million. You want to have the flexibility of a larger fund to do that."

In order to justify such a large fund, however, Crowe and his team will have to write those big checks to generate even larger returns for their own limited partner base. He says the firm has a leg up on the relatively younger firms managing their own growth mega-funds, such as Bessemer Venture Partners and Andreessen Horowitz, because Norwest has weathered economic downturns before and is prepared to help entrepreneurs navigate uncertain markets.

"Two or three years ago, an investor would put a bunch of money into a company and say the time is now, go scale as fast as you can. Don't worry about how much it costs," Crowe said. "If money is free and infinite you can do that, but money is not free or infinite for extended periods of time."

Ultimately, it comes down to entrepreneurs growing at a reasonable pace, Crowe said. While exponential growth is enticing, it's just not realistic for most businesses and most founders. And in the event of a downturn, entrepreneurs are the ones left out in the cold if they can't figure it out.

"If the economy turns or markets turn hard and you're caught short, burning a lot of cash each month, and no investors come in to fund you, you're in a really precarious position," Crowe said. "You're not going to see entrepreneurs raising these huge funds to fund crazy growth, because you are basically seeing investors and board members saying that 2x growth is plenty fast enough."