Picture an LP planning next year’s venture commitments this fall. Their older funds show impressive paper gains, but the cash coming back is a trickle. On one side of the desk: a stack of new manager decks. On the other: a re-up request from a GP they’ve known for years.
Which one do you think gets the check?
That question is shaping venture fundraising right now. Whether you’re an emerging GP raising Fund I to III or a founder raising from those managers, the answer affects you. Let’s walk through the data, two Fund Is that closed anyway, and what to do this quarter.
What DPI Is, and Why It Matters So Much Right Now
Two quick definitions first.
- DPI (distributions to paid-in capital) measures the cash a fund has actually returned to LPs, relative to what they put in.
- TVPI (total value to paid-in capital) adds in the paper value of holdings that haven’t been sold yet.
LPs can admire TVPI. But they can only recommit DPI.
Carta’s VC Fund Performance: Q2 2026 report, published September 23, shows how wide the gap has gotten for funds on its platform:
- Median DPI is 0.37x for 2017-vintage funds, 0.15x for 2018 and 0.04x for 2019.
- Meanwhile, the 90th-percentile TVPI for the 2017 vintage rose to 4.14x, up from 3.31x two years earlier.
PitchBook’s Q3 2026 VC Quantitative Perspectives, released September 18, has a name for this: venture’s “liquidity paradox,” where “record exit value coexists with historically low fund distributions and a growing IPO backlog.”
The Cash Yield Problem
Here’s another way to see the drought.
Jefferies’ Global Secondary Market Review (July 2026, still the latest half-year secondaries dataset) found that LPs’ annual distribution yield “stayed near 10%” in H1 2026. It has been below 20% since early 2023. The historical average since 2001 is 25%. Ropes & Gray’s September secondaries update repeats the $118 billion and roughly 10% vs. 25% figures.
That shortfall is pushing LPs to sell. Global secondaries volume hit a record $118 billion in H1 2026, up 15% from H1 2025. LP portfolio sales made up $56 billion (47%) of it, and venture LP stakes priced at 79% of NAV on average.
LPs are taking a haircut on venture positions just to get cash moving. Does that sound like an investor eager to take a chance on someone new?
How LPs Are Choosing Managers Now
The PitchBook-NVCA Q2 2026 Venture Monitor (published July 2026, data as of June 30) connects the drought directly to manager selection. LPs “are concentrating re-ups on their highest-conviction relationships.”
The fundraising numbers back that up:
- First-time U.S. VC funds raised only $3.4 billion across 53 vehicles in H1 2026, against $11.4 billion for all of 2025. PitchBook says the count is annualizing to its lowest total since 2016.
- Experienced firms raised $64.5 billion, versus $7.9 billion for emerging firms. That 89% share is the highest in a decade.
- Many emerging managers still raising are spinouts from pedigreed funds or veteran operators.
Carta sees the same consolidation. The median $100M to $250M VC fund had 44 LPs in H1 2026, down from 59 in 2025, and median LP count for these funds is down 45% over four years. In 2025, 64% of capital raised by VC funds on Carta went to funds above $100M, compared with 38% in 2017.
Fewer LPs, writing bigger checks, to managers they already know. That’s the squeeze.
The Counterpoint: LPs Still Say They Want Emerging Managers
Now, you might be thinking this door is closed. It isn’t.
The IPEM/AlixPartners Allocation and Fundraising Trend Report 2027, published September 14, found that 88% of LPs surveyed will back Fund I to III managers. More LPs moved into larger allocation bands than last year: 39% will allocate €20M to €100M, and 25% will allocate €100M to €500M.
Two caveats. The survey covers private markets broadly and leans toward PE, so it isn’t VC-only. And the same report says “fundraising timelines continue to be extended.” The appetite is there. It just takes longer.
Two Fund Is That Show the Path
BAG Ventures: Going Wide With Operators
On September 30, BAG Ventures announced the final close of its $11.3 million Fund I, backed by 150 LPs. Founders Bonita C. Stewart and Jackson Georges Jr. developed their early-stage enterprise-AI thesis while serving as Entrepreneurs in Residence at Google and CapitalG.
Per the release, 85% of the LPs are senior leaders, drawn from companies including Google, Snowflake, General Motors, Vanguard, Amazon and NVIDIA. The firm also draws on the BAG Collective, a community of 450+ tech operators investing together since 2021. The fund has made ten investments.
Managing Partner Jackson Georges Jr. summed it up: “Our network isn’t a talking point; it’s the product.”
Notice the contrast. While nine-figure funds cut LP counts, this small Fund I went the other way, raising from a broad base of people the GPs already knew.
Protego Ventures: Going Deep Into a Hard-to-Reach Network
Protego Ventures, co-founded by Lital Leshem and Lee Moser, closed its $125 million first fund, reported October 5. It invests in early-growth Israeli defense-technology companies, combining venture capital with connections across the U.S. Department of Defense, NATO allies, and defense organizations including Elbit, IAI, Lockheed Martin and Army Futures Command.
Its first portfolio company was XTEND. Protego led XTEND’s $70 million Series B, and XTEND later listed on the NYSE (ticker XTND) at a $1.5 billion valuation, per the report. Protego plans a Fund II aimed at U.S. defense tech.
This is the “veteran with a specific edge” profile PitchBook-NVCA says is still getting funded: access to a network most people can’t reach.
One fund went wide. One went deep. Both made the network the product.
What Emerging GPs Can Do This Quarter
Here’s a simple system to start with:
- Lead with access, not allocation math. If you can’t point to a long track record, show a specific network, whether that’s operators or buyers, and evidence that it produces deals.
- Pick broad or narrow on purpose. Micro-funds can go wide with many relationship-driven individual checks. Larger funds are consolidating to fewer, bigger LPs. Each path needs its own target list and intro strategy.
- Speak DPI fluently. With median DPI between 0.04x and 0.37x for 2017 to 2019 vintages, LPs are underwriting how you’ll return cash, not just how you’ll mark up paper. Bring a realistic liquidity plan that includes secondaries, especially for Fund II conversations.
- Budget for a longer raise. Plan your runway assuming timelines stay extended.
Then model your LP outreach, test it with a small group, and adjust based on what gets a second meeting.
What Founders Should Ask Their Investors
The LP squeeze flows downstream. With first-time fund formation this low and LP cash yield around 10%, small and new funds may be deploying more slowly or holding fewer reserves.
- Ask about the fund’s position. Which fund is the check coming from, how much of it is deployed, and what’s the follow-on plan? That’s normal diligence now.
- Read your cap table as a network map. An emerging GP’s LPs, advisors and portfolio founders can be your introduction paths to customers and to the next round’s lead. Pick small-fund investors for the access they bring as well as the check.
- Have a point of view on liquidity. With LP stake sales at $56 billion in H1 2026, expect more questions about secondaries, tenders and exit paths. Think it through before a VC asks.
In a DPI Drought, LPs Back Relationships. Find Yours.
When cash is scarce, trust gets the allocation. For an emerging GP, a cold email to an LP now competes with a relationship that LP already has. For a founder, the funds with dry powder and patience are increasingly the ones whose LPs trust them.
So the useful question for both is: who already knows this person, and how am I connected to them?
Those paths are more visible than you might think. Public records like Form ADV (who advises whom), IRS 990s (foundation and endowment boards), SEC filings and FEC data can reveal second- and third-degree connections. ConnectLab.live maps those paths, so founders and new GPs can reach LPs through a mutual connection, the way established managers already do.
Connection is the currency of the 21st Century, and it’s a partnership game: a GP’s network becomes a founder’s advantage, and a founder’s success becomes the GP’s track record.
What would your next raise look like if every LP or investor you pitched heard about you first from someone they already trust?
If you’d like help building those paths, here’s an open invitation:
- Fund managers: email ken@connectlab.live to claim your fund on ConnectLab, so LPs, co-investors and founders can find you.
- Founders: sign up for ConnectLab’s connection system for founders at https://connectlab.live/founder
All the best,
Ken McArthur
Best-Selling Author and Producer