The Carta Q1 2025 VC Fund Report Shows Signs of Improvement But Lots of Work Still Ahead

TL;DR (Key Takeaways):

• DPI is lagging behind TVPI, signaling that most venture returns are still unrealized and liquidity remains elusive for LPs.

• Micro-fund proliferation is surging, offering more early-stage access but posing long-term follow-on and durability challenges.

• Capital concentration is intensifying, with the majority of dry powder sitting with large funds, further bifurcating the market.

• Mid-sized funds are being squeezed, caught between nimble early capital and mega-fund institutional power.

• High valuations persist for top companies, but deal volume is lower and more selective, emphasizing performance and traction.

• Startups, VCs, and LPs must optimize for durability and long-term positioning, not just paper gains or hype-driven narratives.

The Illiquidity Gap: Why DPI Is the Real KPI

TVPI is a useful vanity metric, but DPI is where real investor confidence is built.

• Most recent fund vintages have DPI below 0.30x, including the 2017 cohort that is now eight years old. While the IRR and TVPI figures show upside potential, LPs can’t pay their bills or make re-commitments off of markups.

• Low DPI is becoming a bottleneck for emerging managers. Without realized returns, even a “top quartile” fund on paper may struggle to raise their next vehicle. This forces many GPs to consider continuation funds, NAV loans, or early secondary sales just to return capital and maintain credibility.

• For LPs, DPI is how trust is earned. A fund that has returned cash, even modest amounts, is more reliable than one with high marks but no exits. In 2025, DPI is the currency of re-commitment.

🧠 Strategic Implication: GPs need to start building DPI-focused strategies early, whether that’s through strategic secondary opportunities, exit prioritization, or pre-planned liquidity windows.

Micro-Fund Explosion: Power to the People (With Caveats)

The rise of micro-funds, those under $10 million, is arguably the most transformative trend of the last four years.

• Micro-funds make up 42% of the 2024 vintage, up from just 25% in 2020. This signals lower barriers to entry and an explosion in operator-led, thesis-driven, and regionally focused capital.

• Pros:

  • Faster decisions and friendlier early-stage terms.

  • Access to niche areas (e.g., climate, devtools, LatAm, pre-PMF B2B SaaS).

  • LPs can back emerging talent early.

• Cons:

  • Often lack follow-on capital or deep networks.

  • Must rely on external lead investors for signaling.

  • Harder for LPs to perform diligence across dozens of similar small vehicles.

💡 Key Insight: Micro-funds aren’t inherently bad, but they must be paired with scalable downstream support. For startups, this means curating your cap table strategically, not just stacking checks.

🧠 Advice to Micro GPs: Prioritize portfolio concentration, pro-rata rights, and co-investment partners. In today's market, spray-and-pray won’t work.

Barbell Dynamics: The Vanishing Middle Class of VC

The Carta data reveals what many of us feel on the ground: the barbell is real.

• Only 11% of funds are over $100M, but they hold 54% of all dry powder. The capital gravity has shifted decisively toward scale.

• The “missing middle” of $50M–$150M funds is shrinking. These funds struggle to compete with both high-speed micro funds and heavyweight institutions.

• Startups face a capital cliff: Seed is (relatively) accessible. Series A and beyond is bottlenecked.

• For GPs: Being a generalist in a mid-sized fund is becoming a losing strategy. You must either scale significantly or focus narrowly.

🧠 What this means: The barbell dynamic is no longer a theory, it’s now an allocation reality. The future belongs to hyper-focused specialists or institutionally-backed giants.

Valuation Compression vs. Concentration: A Selective Boom

One of the most interesting paradoxes from Carta's report is this: deal volume is down, but valuations for top-tier companies are still climbing.

• Seed rounds now average $16M pre-money; Series A is up to $48M. These are not distressed valuations, they reflect conviction.

• Roughly 19% of deals in Q1 2025 were down rounds. So while capital is available for outliers, average startups are facing markdowns or bridge rounds.

• Capital scarcity is driving flight to quality. Only companies with strong traction, unique moats, or verticalized AI/IP are getting competitive term sheets.

• Exit windows remain limited. Despite TVPI ticking upward, DPI won’t improve until public markets or M&A reopens more broadly.

💡 Investor Perspective: Write fewer, higher-quality checks. This market rewards sharp diligence and thesis-driven conviction, not FOMO.

🧠 Founder Guidance: You must outperform to raise. Relationships, storytelling, and execution need to be in sync from Day 1.

🧠 For Startups:

• Focus on metrics that matter: CAC, retention, burn multiple.

• Optimize your investor base for experience and follow-on access.

• Build for sustainability. The growth-at-all-costs era is over.

📈 For VCs:

• Size your fund appropriately for your thesis. Don’t straddle strategies.

• Reinforce your pro-rata access early in breakout companies.

• Use TVPI as a milestone, but push toward DPI.

💼 For LPs:

• Blend exposure across fund sizes, sectors, and geographies.

• Push GPs for exit discipline and DPI visibility.

• Prioritize repeatable investment systems over anecdotal success.

Read the entire report here https://carta.com/data/vc-fund-performance-q1-2025-full-report/