Some venture capitalists were probably a bit too hopeful about hitting fundraising goals this year

• Insight Partners and TCV are reportedly scaling back the size of huge venture funds they planned.
• The market is forcing VCs to rethink the size of their funds and how many investments they do.

The writing was on the wall – was the venture capital industry not paying attention?

Last year was especially brutal for venture-capital funding to US startups. Funding to startups overall was down 31% from 2021, PitchBook data shows. But what about funding to the firms and funds themselves?

That number was actually the highest it's been in 10 years. The amount of money VC firms raised themselves hit $170.8 billion in 2022, according to PitchBook data, up from $158.5 billion in 2021. So no, some VCs probably didn't see the writing on the wall because the capital kept flowing in last year.

But it appears the reality of the market overall — high interest rates and longer timelines to get potential investment returns — has set in for limited partners, the backers of those VC funds. There have been signs of this slowdown in recent first-quarter fundraising data. And it's also evident in two gigantic firms that had lofty fundraising goals but are now scaling back: Insight Partners and TCV.

Last July, Insight had its sights set on another $20 billion flagship fund, Bloomberg reported, after they had just closed on a fund of the same size earlier that year. But now, that fundraising goal is being cut to $15 billion after Insight has only been able to pull in $2 billion, the Financial Times reports, citing a letter the firm sent to its investors. In that letter, Insight said it was seeing a "great reset in tech" and that it would scale back its funding pace.

TCV, another venture-capital stalwart, is also having tough times. The firm has raised about 50% to 75% less for a $5.5 billion fund it planned for last year, The Information reported. Regulatory filings show that the firm has raised $1.4 billion for the flagship fund thus far, but it's unclear whether they're done fundraising.

Firms react to the market as it changes just as startups do, said one venture capitalist at a growth-stage firm, who asked not to be named. If startups are seeking to raise smaller rounds to hold them over during the downturn, investors can write smaller checks. Then they have a choice to make, the venture capitalist said: Firms can continue to raise outsized funds, knowing that they'll need to do more investments to deploy the fund, or they can whittle down the target size of their funds.

To be fair, some firms started pumping the brakes a bit earlier on, like Tiger Global. Tiger Global decided to more than halve its original goal of fundraising $12.7 billion for venture-capital funds. It's now aiming for $5 billion, The Wall Street Journal reported in February.

And other smaller funds also decided to scale back and reset their expectations, even as early as last year, in the midst of the broader pullback. Insider's Melia Russell reported that Brian and Lisa Sugar had initially set out to raise $75 million for Sugar Capital's fund two, but decided last summer to trim that amount. Sugar recently told Insider the firm raised $33 million for that fund. Others like Turner Novak at Banana Capital and Cake Ventures' Monique Woodward have also had to settle for less funding.

The fundraising market has been so unsettling that many feel that some solo capitalists — VCs that run firms by themselves — and other emerging managers may have to close up shop this year or next.

But some VCs now see the current environment as a prime investing opportunity and have actually raised more money and are leaning into writing more checks to startups.

Last month, Mayfield Fund announced that it raised $955 million across two new venture funds. Both funds were oversubscribed, Mayfield's managing director Navin Chaddha told Insider.

Chaddha, who's been at the helm of Mayfield for over 17 years, has experienced a downturn or two in his time at one of the oldest VC firms in Silicon Valley. He said that great companies are founded in tough economic environments, as is the case now. There's less capital available, big companies are more focused on profitability than investing, but big ideas are advancing and there's the talent available to build.

"We think this is the time to lean in," Chaddha said. "Crisis is also an opportunity."