Fund of funds (FoF) have been created to function a bridge for LPs to get entry to managers they couldn’t again in any other case. However in an setting the place funds are usually not seeing constant assist from their current LPs, and there are extra enterprise funds than ever, is their function nonetheless related?

Fund of funds fundraising — say that 5 occasions quick! — has declined for years. To check, conventional U.S. enterprise agency fundraising set a report in 2022 with $162 billion. U.S.-based VC FoF raised simply $400 million within the first quarter of 2023, in keeping with PitchBook, and $3 billion in 2022. This compares to $24.4 billion in 2021 and $33.7 billion — the fundraising peak — in 2017.

It’s not shocking why many LPs have soured on the technique, mentioned Kyle Stanford, a senior enterprise analyst at PitchBook. For one, backers of those funds pay a mixture of charges to each the FoF and the underlying commitments the FoF supervisor makes.

“LPs have that double layer of charges. And that additional time it takes after [an LP] invests within the fund of funds after which have it deployed is simply one thing that LPs proper now simply don’t need to cope with,” Stanford advised TechCrunch+.

And with there being so many new corporations and funds out there, the problems surrounding LPs not gaining access to enticing VC funds is basically moot and that barrier isn’t actually a problem anymore, he mentioned. “There was far more alternative to put money into a VC than there has ever been previously,” he mentioned. “For brand new LPs coming into the market, they didn’t have to go to a fund of funds to get entry.”

However to be clear, even when the funding numbers are down, FoF nonetheless holds a spot in the way forward for enterprise — possibly only a completely different one than they did historically. A number of corporations have began innovating on the mannequin, and FoF can nonetheless assist LPs get entry to the managers they’ll’t put money into in any other case, albeit for various causes than earlier than.