The Dynamics of Venture Fundraising

· 17 min read
venture-capital startups finance

Venture fundraising has a set of structural dynamics that shift predictably through market cycles. Lead investor ownership percentages, syndicate size, the mix of activity across stages, and (most telling of all) how long it takes companies to raise their next round. These dials move when the market moves. If you understand the pattern, you can read the cycle in real time rather than waiting for the headlines to catch up. I spent years looking at this data as Head of Data Science at Aumni, where we had extracted and anonymized data from more than 100,000 venture transactions representing over 40,000 investors. The 2020-2024 period gave us an unusually complete view of a full cycle: resilience, boom, correction, and partial recovery.

This post is for informational and educational purposes only. Nothing here is legal, tax, or investment advice. Consult qualified professionals before making any decisions based on this content.

This post pulls together several threads I’ve been thinking about for a while. Firm velocity as a metric for measuring deployment behavior. How long fundraising actually takes, and why even the best companies saw their timelines stretch. How structural patterns in lead ownership, syndicate construction, and stage mix shift through cycles. And what all of that means if you’re a founder planning a raise, an LP modeling cash flows, or a GP trying to stay honest about your own pacing.

Firm Velocity: The Deployment Metric That Gets Overlooked

If you follow venture capital at all, you’ve probably seen plenty of charts tracking aggregate deal volume. Total deals up, total deals down, dollars deployed per quarter. Those numbers are useful, but they miss something important: the behavior of individual firms. Firm investment velocity, the number of new deals a given firm closes per quarter, is the metric that fills that gap. It’s one of the most underappreciated indicators in venture, and it has direct implications for LPs, GPs, and founders alike.

At its simplest, firm velocity is the average number of new investments a firm makes per quarter. Why does this matter beyond aggregate numbers? Because aggregate deal volume can move for two very different reasons: fewer firms investing, or each firm doing fewer deals. Those two scenarios have completely different implications for the market. Firm velocity isolates the second variable, telling you whether the firms that are active are speeding up or slowing down their deployment.

A firm running at a velocity of 5 deals per quarter is building a very different portfolio than one running at 2. The first is casting a wide net, the second is concentrating bets. Neither approach is inherently better, but the shift between them changes almost everything downstream.

Velocity and Portfolio Construction

For GPs, velocity is tightly linked to portfolio construction strategy. A firm that typically targets 25 companies per fund needs a certain velocity to hit that target within the fund’s investment period. If velocity drops, one of a few things happens: the investment period extends, the portfolio ends up smaller than planned, or the firm starts writing bigger checks into fewer companies. Each of those outcomes changes the risk profile of the fund. A smaller portfolio increases concentration risk. A longer investment period can create vintage year overlap with the next fund. Bigger checks might push a firm outside its historical sweet spot.

For LPs, firm velocity has cash flow implications that matter for allocation planning. When velocity drops across the industry, capital calls slow down. If you’ve modeled your private markets allocation assuming a certain deployment pace, a sustained drop in velocity can leave you overallocated to liquid assets and underallocated to venture. Your commitment schedule may need to adjust, and the vintage year diversification you were counting on may end up more concentrated than intended.

What Velocity Looked Like During the 2022-2024 Cycle

After the rapid deployment frenzy of late 2020 and 2021, firms began pulling back in mid-2022. By the end of 2023, deals among funds had fallen to 48% of Q1 2019 volume, aggregate activity cut by more than half relative to pre-pandemic levels. At the firm level, average investment velocity stayed under 3 deals per quarter throughout 2023, eventually hitting a five-year low of 2.12 new investments per quarter in Q4 2023. That translates to roughly one new deal every six weeks for the average venture firm.

Two things drove this contraction working in tandem. First, selectivity: after aggressive 2020-2021 deployment, many firms had portfolios larger than they intended and were managing markdowns in existing positions. Second, the opportunity bar had risen. The metrics that might have closed a round in 2021 were no longer sufficient. Investors wanted more traction, more capital efficiency, and more realistic growth plans before committing.

What Founders Should Take Away from Velocity Data

For founders, firm velocity is a leading indicator of how competitive your fundraise is going to be. When velocity is high, firms are actively looking to fill portfolio slots, and competition for each deal is intense on the investor side. When velocity is low, the opposite is true: each firm is filling fewer slots per quarter, and competition for those slots is intense on the founder side.

There’s also a feedback loop worth understanding. When velocity drops, the remaining deals get more scrutiny. Firms doing 2 deals a quarter are going to be more deliberate about each one than firms doing 5. The diligence process gets longer, internal debates get more thorough, and the bar for conviction rises. A founder who might have gotten a term sheet after three partner meetings now needs five. A process that used to wrap up in six weeks now takes three months. And if the firm passes, you’ve lost three months before moving on to the next conversation.

I think of firm velocity as the supply side of the fundraising equation: how many “slots” are available across the market in a given quarter? When that number drops by half, the math for founders gets a lot harder, even if nothing about their company has changed.

How Long Does It Really Take to Raise a Round?

The time between financing rounds is one of the most telling indicators of overall market health. It captures something simple but powerful: how long companies have to wait before they can raise their next round. When times are good, the gap shortens. When times are tough, it stretches.

The 2022 Correction and the Long Wait

The 2020 and 2021 venture market had conditioned everyone to expect fast fundraising cycles. Companies were going out for new rounds every 12 to 18 months, sometimes sooner. Then the correction hit. Interest rates went up, public market multiples compressed, and the venture market recalibrated. The average time between rounds crept up from around 18 months in late 2021 to a five-year high of roughly 25 months by early 2024.

Two things about this stood out. First, the trend was remarkably consistent across stages. This wasn’t a case where seed-stage companies were fine but later-stage companies were struggling. Every stage saw the same elongation. When every stage elongates simultaneously, it’s macro, not a stage-specific story.

Second, the average was consistently higher than the median, which tells you something about the shape of the distribution. A long tail of companies was taking much, much longer to raise. The median company might have been at 20-22 months, but a substantial group was out there at 30, 36, even 40+ months between rounds, pulling the average up.

The Uneven Recovery in 2024

Through the second quarter of 2024, timelines showed real improvement: the median time between rounds across all stages fell to roughly 22 months, down from the 25-month peak in Q1 2024. The average also converged toward the median, suggesting that the outlier tail was shrinking and the whole distribution was tightening.

But the improvement didn’t hold. Despite recovering deal counts, stabilizing valuations, and improving investor sentiment through the rest of 2024, time-to-close actually increased in the second half of the year. The most likely explanation is that improving conditions attracted more companies back into the fundraising pipeline – companies that had been waiting on the sidelines came to market, increasing competition for investor dollars faster than the supply of capital was recovering. The definition of “ready to raise” had also shifted: investors now expected more traction, more proof points, and more diligence before committing, adding weeks or months to every process regardless of underlying market direction.

Stage-Level Patterns in Fundraising Timelines

While the overall trend was consistent, absolute numbers varied by stage in ways that make intuitive sense and recur across cycles.

Early-stage companies (Seed and Series A) typically have shorter cycles because milestones are more clearly defined: build MVP, get early customers, show initial traction. During the 2023 correction, these timelines stretched from historical norms of around 12-15 months to 18-20 months.

Mid-stage companies (Series B) saw similar elongation from a higher baseline. Pre-correction, a 15-18 month cycle was typical. By late 2023, that had stretched to 20-24 months.

Late-stage companies (Series C and beyond) experienced the most dramatic shifts. These rounds are larger, require more investor consensus, and involve more complex deal structures. Time between rounds moved from 18-20 months historically to 24-28 months.

The stage-level pattern is useful because it tells you where the pain is most acute. In the 2022-2024 correction, the absolute time pressure was greatest at late stage, where the rounds are larger and the burn rates higher.

The Outlier Problem

The gap between the mean and median deserves special attention because it shows up in every downturn and always tells the same story. When outlier companies take particularly long to raise, you end up with two distinct groups: companies that are able to raise (even if it takes longer than it used to) and companies stuck in fundraising limbo where the next round is always “a few months away” but never quite materializes.

That second group is where the hard outcomes happen – shutting down, getting acqui-hired at a fraction of their last valuation, or doing some kind of distressed restructuring. By late 2023, the distribution of time-between-rounds was developing a clear second hump at the 30+ month mark. You had the main population of companies still raising (slowly), and then a growing group that had effectively stalled out. That bimodal shape is worth watching for in future cycles, because it appears before the wave of shutdowns that inevitably follows.

Graduation Rates: The Filter That Tightened

Where the data got really interesting was in graduation rates – the percentage of companies that successfully raised their next round within a defined time window. As the time between rounds increased, the graduation rate of startups raising the subsequent round within two years decreased substantially. The 2022-to-2024 cohort had the lowest rate of successfully raising the next round within two years among the most recent four cohorts.

Some of those companies are still alive and operating, just taking longer to reach the metrics they need for the next round. Others have shut down or been acqui-hired. And some are in the uncomfortable middle ground where they’re still operational but the path to the next round is unclear.

What Was Driving the Decline

A few factors contributed to declining graduation rates. First, the sheer elongation of fundraising timelines meant that companies needed more runway to bridge between rounds – if it used to take 15 months to close your next round and now it takes 22, you need an extra seven months of cash, and not every company had that buffer. Second, investor standards for follow-on financing got meaningfully higher: it wasn’t enough to show reasonable progress, you needed clear product-market fit, improving unit economics, and a credible path to profitability. Third, the availability of alternative financing changed the picture somewhat. Some companies turned to venture debt, revenue-based financing, or extension rounds rather than traditional priced equity rounds. These companies might still be doing fine operationally, but they wouldn’t show up as having “graduated” in the conventional sense.

Implications for Investors and Founders

For investors, declining graduation rates are a portfolio construction problem. If you’re writing seed checks and historically assuming that a meaningful share of your portfolio will raise a Series A within two years, you need to revisit that assumption. That number is meaningfully lower in a corrected market, which has implications for reserves, write-off timing, and overall fund returns.

The graduation rate data also connects back to firm velocity in an important way. When fewer companies are graduating to the next stage, the pool of investable companies at each subsequent stage shrinks. That means Series A investors have fewer graduated seed companies to choose from, Series B investors have fewer graduated Series A companies, and so on. In theory, this should make the companies that do graduate more attractive. But it also means that investors at each stage are seeing a skewed sample – the companies that make it through the filter during a tough market tend to be genuinely strong, which can create a false sense that “the market is fine” if you’re only looking at the companies that show up in your pipeline rather than the ones that fell out of it.

Even Top Companies Weren’t Immune

One of the most persistent signals in the data was the relationship between valuation performance and fundraising speed. Companies that achieved valuations above the 75th percentile historically closed subsequent financing rounds much faster than those at lower valuations. In 2021, a company above the 75th percentile could close its next round in approximately 10 months. For companies below the 25th percentile, it took over 20 months. That 10-month gap held across stages and in both up and down markets. If your company was performing well enough to command a top-quartile valuation, investors wanted in on the next round, and that competition among investors compressed timelines.

In 2023, that pattern broke down. The mean and median time between rounds reached a five-year high of approximately 23 months. More striking was that even top-quartile companies saw a sharp increase in months-to-raise. The gap between top and bottom quartile narrowed, not because bottom-quartile companies got faster, but because top-quartile companies got much slower.

A few things drove this. Investor due diligence processes stretched out, and internal investment committees added review layers even for obvious deals. Some top-performing companies deliberately delayed fundraising rather than raise into a down market when they had the runway to wait – a rational choice that shows up in the data as longer time between rounds. And being in the top quartile of valuations was no longer sufficient to generate investor excitement on its own; you also needed to show capital efficiency, a clear path to profitability, and resilience in your metrics. That additional scrutiny slowed things down even for the best companies. There’s also a behavioral component: when the overall market narrative is cautious, even deals that should be straightforward take longer to close.

The Structural Patterns That Recur Through Cycles

Stepping back from the specific numbers, the structural patterns that shift through market cycles are remarkably consistent across different periods, even when the catalysts vary. Interest rates one cycle, a pandemic the next, a credit crisis the one before that. The dials that move are the same ones every time.

Lead Investor Ownership: The Competition Signal

One of the first things that shifts in a changing market is how much of the company lead investors end up owning. In competitive markets, leads take smaller ownership stakes. In tighter markets, they demand more.

During the resilient phase of the cycle (which the 2020 data captured well), lead investors were taking smaller ownership stakes at the median – counterintuitive given the economic uncertainty of a pandemic, but consistent with the pattern: competition for good deals kept terms founder-friendly. The supply of quality companies didn’t expand just because a pandemic hit, and the capital available to fund them didn’t contract as much as many feared.

This is a recurring pattern. In any period where there’s more capital chasing deals than quality deals to absorb it, lead ownership percentages compress. When capital pulls back, they expand. It’s one of the cleaner signals of the supply/demand balance in the market.

Syndicate Construction: How Rounds Get Built

The second structural pattern to watch is how rounds are constructed. In expansionary periods, syndicates tend to broaden, with more participants sharing each round. In contractions, they narrow.

The 2020 data showed a clear move toward broader syndicates. Lead investors were deliberately leaving room for co-investors – corporate VCs, international funds, domain-specific investors – because those participants were increasingly seen as additive. This was especially true in later-stage rounds, where the benefits of a broad syndicate (market expertise, customer introductions, international expansion support) were most directly tied to the company’s growth strategy. At seed stage, syndicates stayed smaller and more concentrated, which makes sense given the smaller round sizes and the relationship-driven nature of early investing.

These dynamics accelerated through the 2021 boom, then reversed during the 2022-2023 correction as investors became more selective and rounds tightened. The pattern itself is cyclical, but the direction at any given moment tells you a lot about market sentiment.

Stage Mix: Where the Action Concentrates

The third pattern is about where in the stage spectrum activity concentrates. During the 2020 period, seed-stage activity shifted notably. While overall seed deal volume dipped as the market adjusted to the pandemic, the size of individual seed transactions increased. The pandemic, somewhat counterintuitively, created favorable conditions for this – starting a company got cheaper in some respects, and investors who pulled back from late-stage activity redirected attention toward earlier stages where check sizes were smaller and time horizons were longer.

This “flight to early stage” during uncertainty is a recurring theme. When late-stage conviction is low, capital flows earlier in the lifecycle where the absolute dollar amounts at risk are smaller and the optionality is greater. When late-stage conviction returns, the flow reverses.

What This All Means in Practice

The full arc of a market cycle shows up cleanly in these structural metrics. In expansionary phases, leads take less ownership, syndicates broaden, seed investing grows, firm velocity is high, and fundraising timelines compress. Graduation rates stay healthy. Those trends accelerate through peaks, then overcorrect in pullbacks: velocity drops to one deal every six weeks, time between rounds stretches past two years, graduation rates fall, and even top-quartile companies lose their historical fundraising speed advantage.

The 2021 boom compressed maybe three years of normal market evolution into about 18 months. The correction then tried to unwind all of that in a similar timeframe. That kind of whiplash is hard on everyone, but especially on companies that raised during the boom at inflated valuations and now needed to grow into those numbers before they could raise again. Many of them couldn’t, which is a big part of why graduation rates fell as sharply as they did.

For founders, the practical implication is sobering. Strong metrics alone don’t guarantee a fast raise. That means starting fundraising earlier, preparing for a longer process, and potentially accepting terms that might have seemed unthinkable a couple of years earlier. A 22-month median is better than 25 months, but it’s still well above the 15-to-18-month range that was typical before the correction.

For investors, the breakdown of the valuation-speed relationship was actually an opportunity. In a market where even great companies take longer to raise, patient capital has an advantage. Investors willing to move quickly when they found conviction could win competitive deals at better terms, precisely because the rest of the market was moving slowly.

For LPs, tracking firm velocity across your portfolio managers helps you anticipate cash flow patterns and concentration risk. Declining graduation rates mean your assumptions about follow-on rates and write-off timing probably need updating. And the elongation of fundraising timelines means time to liquidity for any given vintage is likely longer than your models assumed.

Firm velocity connects to fundraising timelines, which connect to graduation rates, which connect to portfolio construction, which connects right back to how firms deploy capital. These patterns recur. The specific numbers change, the catalysts vary, but the structural dynamics are remarkably consistent. Understanding them won’t tell you exactly when the next turn is coming, but it’ll help you recognize it when it arrives.

Further Reading

Some of the data and analysis in this post originally appeared on the Aumni blog, here, here, here, here, here, and here.