The venture capital landscape continues to mature, with notable shifts in fund sizes and sector-specific dynamics reshaping the startup ecosystem. Data from Carta, a platform for equity management, highlights two significant trends: a surge in smaller VC funds in 2024 and a marked decline in dilution for healthcare startups in Q1 2025.
These developments reflect broader market adjustments and offer critical insights for founders, investors, and limited partners (LPs) navigating today’s private markets.
In 2024, the VC industry saw a pronounced shift toward smaller funds, driven by a combination of market dynamics and investor caution.
According to Carta’s VC Fund Performance report, 42% of venture funds closed in 2024 were between $1 million and $10 million in size, a significant increase from 25% in 2020.
Conversely, the share of funds between $25 million and $100 million dropped from 36% to 22% over the same period, while funds larger than $100 million fell from 15% to 9%.
This tilt toward smaller funds is indicative of a broader “flight to quality,” where LPs are becoming more selective, concentrating capital among fewer, often more specialized, fund managers.
The reduction in LP participation has further fueled this trend. For funds managing $100 million to $250 million, the median number of LPs dropped from 83 in 2022 to 47 in 2024, a nearly 50% decline.
To compensate, anchor check sizes have grown, with the median anchor check for these funds rising from $23.1 million in 2022 to $35 million in 2024.
This concentration of capital reflects a cautious approach by LPs, who are prioritizing funds with track records or niche strategies, particularly in a market where fundraising cycles are lengthening.
Some funds now take over two years to close, underscoring the challenges of raising capital in a less frothy venture ecosystem.
Smaller funds, often led by solo general partners (GPs) or emerging managers, are gaining traction due to their agility and focus on early-stage opportunities.
These funds typically have fewer LPs—median counts range from 12 to 44 for funds between $1 million and $10 million—allowing for more streamlined decision-making.
However, the performance of these funds varies widely. For the 2017 vintage, smaller funds in the top decile achieved a TVPI (Total Value to Paid-In Capital) of 4.03x, compared to 1.67x for funds over $100 million, suggesting that smaller funds can deliver outsized returns when they back the right startups.
Declining Dilution in the Healthcare SectorIn Q1 2025, the healthcare sector—encompassing healthtech, biotech, pharma, and medical devices—demonstrated resilience amid a slowdown in VC activity.
Carta’s State of Private Markets report reveals that median dilution in new funding rounds for healthcare startups has declined significantly over the past year.
For instance, the median Series A round in Q1 2025 involved 17.9% dilution, down from 20.9% a year earlier.
At the seed stage, healthcare startups saw dilution as low as 14.2%, compared to 20% for SaaS companies in Q1 2024.
This reduction in dilution reflects a combination of higher valuations and smaller round sizes.
Healthcare startups have benefited from sustained investor interest, driven by the sector’s durability post-COVID-19.
While overall VC deal counts dropped by 33% from Q4 2024 to Q1 2025, healthcare saw smaller declines in both deal volume (31.8% since Q1 2022) and cash raised (44.1%) compared to SaaS (45.4% and 70.1%) and fintech (57.5% and 78.5%).
The West, particularly California, has emerged as a hub for healthcare investments, capturing 60% of the sector’s capital in Q1 2024, with larger, later-stage deals concentrated in the region.
However, the rise in bridge rounds—44.3% of healthcare deals in Q1 2024, up from 36.9% in Q4 2023—signals challenges for some founders, who may be opting for extensions rather than new priced rounds due to valuation pressures or readiness.
Despite this, the sector’s ability to maintain lower dilution suggests that healthcare founders are retaining more equity, potentially bolstered by strong investor confidence in the sector’s long-term growth.
The rise of smaller VC funds and declining dilution in healthcare highlight a venture market adapting to new realities.
Smaller funds offer flexibility and the potential for high returns, but their success hinges on identifying breakout startups in a competitive environment.
Meanwhile, healthcare’s resilience underscores its appeal as a stable investment sector, even as founders navigate extended fundraising timelines.
As the VC ecosystem continues to evolve, these trends will shape strategies for both investors and startups.
