So there’s an issue venture-backed startups need to be extra aware of in 2024: Reserves Exhaustion. It’s not a new issue but we are going to see a ton more of it in 2024, due to all the bridge rounds in 2023
What’s “Reserves Exhaustion”?
It’s literally when a specific VC fund runs out of money. Not the whole VC firm, but the specific fund that invested in you. This can be hard for founders to truly understand, but VCs raise a series of funds, Fund I, II, III, IV … etc. They typically invest half over the first 2-3 years, and then save the rest to invest over the following 4-7 years. That second half of the fund, held for second and third checks, is called “reserves”.
But simply put, a lot more folks needed more money in 2023. A lot more. And so that “reserve: money isn’t just going to last as long, and be available to as many portfolio companies, as planned.
Those funds have in many cases depleted their reserves faster than planned, and more importantly, because more bridge rounds were done … there’s overall a lot more competition for whatever reserves are left.
Net net this can mean even top funds can simply run out of money to further fund even their winners and especially even those doing “pretty well” that just need bit more cash.
There is a lot of nuance here, and the situation varies radically from fund-to-fund.
But overall, there will be a lot more competition for fewer “reserves” than planned in each VC fund in 2024.
And a lot of VCs are already getting cagier and less direct when asked if they’ll participate in the next round or any extension.
If you don’t hear a crystal clear Yes — assume it’s a No. Anything else is poor planning and too risky.
A related post here:
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via https://www.aiupnow.com
Jason Lemkin, Khareem Sudlow
