PitchBook News - Why VCs should slow down

Looking more broadly over the last two decades, funds that deployed capital more slowly in their first year outperformed their faster-deploying counterparts, delivering an aggregate 11.6% net IRR compared to 10%.

Why? Slower pacing often aligns with more disciplined investing, avoiding the pitfalls of overpaying in frothy markets.

Using history as a guide, fast deployment hasn't been a winning strategy, but there are instances when market timing has worked.

Funds that rushed into deals during downturns like the Global Financial Crisis struggled, while those with patience and measured pacing emerged stronger. However, as the market began recovering post-GFC, the advantage shifted.

Fast-deployment funds in the 2010-2014 vintage cohort captured outsized gains, with top-decile funds achieving excess IRRs of 20.1%, compared to 11.4% for slow-deployment peers.

This pattern highlights a key takeaway: market timing can be fruitful if done well, but in most periods it's better to take a disciplined approach to capital deployment.

For LPs, understanding deployment speed isn't just a metric—it's a window into a fund's strategy and discipline, as well as the general frothiness of the market.

With VC dealmaking starting to bounce back, LPs should keep a watchful eye on the pace their managers are putting capital to work.

For a deeper dive into these dynamics, explore our free research: Does Slow and Steady Win the Race?