Insight Partners cuts size of $20bn fund amid ‘great reset in tech’

Insight Partners has slashed the $20bn target for its latest fund and said it would slow down its pace of dealmaking after almost a year of glacial fundraising as technology valuations have slumped.

The New York-based venture capital firm, which is among the largest technology growth investors in the US with $90bn of assets, has raised only about $2bn for its 13th fund, which was first marketed to investors last June.

In a letter to institutional investors on Monday, Insight Partners said its investors that it was witnessing a “great reset in tech” as a result of a steep decline in public company valuations that had impacted the value, number and quality of start-ups in which it could invest.

As a result, Insight said it would cut the size of its latest fund to $15bn. It also said it expected to slow the pace at which it deploys its existing funds from an average of two years, despite being historically far faster than many of its peers. Insight has just under $10bn of “dry powder” — funds it has raised but not yet deployed.

Insight is “not seeing a volume of companies that [it is] excited about”, said a person close to the fund.

Insight is regarded as a bellwether for venture capital and technology investing. One investor based in New York said the difficulty it faced in raising its latest fund underscored the sector’s challenges. “It is a bloodbath,” the person said.

Institutional investors such as pension and endowment funds have reined in investments to illiquid private markets as interest rates have risen and technology companies’ valuations have stalled.

Venture capital fundraising soared to record levels during the pandemic, with firms raising a total of $159bn in 2021 and $171bn in 2022, according to PitchBook. But that has collapsed in the last six months, and US venture funds raised just $12bn in the first quarter of this year.

Insight was one of the busiest investment firms in 2021 when technology valuations and dealmaking boomed, participating in deals valued at a total of $25bn including leading fundraising rounds larger than $500mn into Transmit Security and Nuvemshop, according to Crunchbase. However, the number of venture and private equity rounds Insight participated in fell by a fifth last year, from 243 deals to 199, and the total sum of deals it was in dropped to $14.4bn, Crunchbase data showed.

“The sharp fall in valuations has reset the market in a very positive way,” Insight’s note to investors said. “In 2021, we saw exceptional growth in technology demand but challenging valuations and a lack of discipline around cost structures and rates of cash burn. We believe the great reset has solved those two challenges.”

Insight has invested heavily in fast-growing software companies in recent years, particularly as valuations soared in 2020 and 2021.

Last year, it invested in a $1bn fundraising round for payment processor Checkout.com, which valued it at $40bn, and in a $690mn round for Singapore-based Coda Payments, which was valued at about $2.5bn. The company led Jasper’s $125mn series A funding round last year, valuing the artificial intelligence chatbot company at $1.5bn. Other major investments have included HelloFresh, Calm, Delivery Hero, Twitter and failed crypto platform FTX.

However, it is exposed to a painful reversal in tech valuations that has taken place over the past 18 months.

Insight has deployed roughly $14bn of its 12th fund, which closed last year after raising $20bn, said the person close to the company.

“They deployed very aggressively in a very short time . . . at peak prices,” said one US venture investor whose firm explored an investment alongside Insight. “They’re smart guys who got carried away.”

An adviser to private market investors based in the US compared Insight to Tiger Global, Chase Coleman’s investment fund, which wrote a series of massive cheques for start-ups at the top of the market in recent years.

“Insight and Tiger were both being very active and aggressive in the go-go era,” the person said. “Insight picked their spots a lot more strategically . . . Everyone who was very active in late-stage venture in 2020 and 2021 will lick some wounds, but Insight’s process was a lot more robust.”

Additional reporting by Ivan Levingston and William Louch