Key Takeaways
- • Schroders Capital argues venture capital matters more than ever and that the current market offers attractive entry points for institutional investors following the 2021-2022 correction.
- • Cambridge Associates' Venture Capital Index has outperformed the S&P 500 and Russell 2000 over 10, 15 and 20-year horizons, and outperformed MSCI Europe across all long-term horizons, while recent shorter-horizon returns have lagged.
- • US venture fundraising fell to about $67 billion in 2023, the lowest in six years, and new venture capital raised by funds in H1 2025 dropped 33% year-over-year, constraining capital supply outside AI.
- • Schroders Capital's five-factor playbook: focus on early-stage rounds, build a core of 10-15 top-tier managers, access secondaries and co-investments, diversify across managers, sectors and geographies, and remain disciplined through the cycle.
- • Late-stage AI valuations have risen again while biotech and life sciences funding has slowed, which the firm frames as contrarian opportunities requiring strict price discipline.
Summary
Schroders Capital contends that venture capital is more important than ever in the current market, as it drives innovation and economic growth and provides access to high-potential companies not available in public markets. According to the firm's analysis of Cambridge Associates data, the Venture Capital Index, net of fees and carried interest and covering 3,356 funds formed between 1981 and 2025, has outperformed the S&P 500 and Russell 2000 over 10, 15 and 20-year horizons. It has also outperformed the MSCI Europe over all long-term horizons. Returns over shorter, more recent periods have been weaker, reflecting the 2021-2022 boom in Covid-era tech and biotech investment and the subsequent correction in later-stage valuations, which the firm views as creating a less inflated entry point. Past performance is not a guide to future returns.
The firm notes that large institutional investors typically allocate 20-25% of their private equity programmes to venture capital. It expects the coming years could produce strong vintages, with potential for a rebound in deal activity, recovering valuations and improving exit markets, while also highlighting the AI wave that followed the late-2022 launch of ChatGPT. Fundraising, however, is constrained: venture firms face a selective market and a tighter liquidity environment, with US venture fundraising falling to about $67 billion in 2023 and the retrenchment continuing through 2024 and 2025, weighing most heavily on emerging and mid-tier managers.
Schroders Capital's playbook rests on five factors. First, it prioritises seed and Series A rounds, which it says offer lower and more stable entry valuations and stronger long-term return potential. Second, it recommends a core-satellite structure, with a core of 10-15 established top-tier global venture firms plus selected emerging managers, given the skewed return distribution. Third, it advises using secondaries and co-investments to increase concentrated exposure to leading start-ups, approached selectively. Fourth, it calls for diversification across investment count, sectors, managers and geographies. Fifth, it stresses cycle discipline: consistent vintage deployment for primary fund commitments, and greater caution on directs, including reserving dry powder during frenzy and at times selling rather than buying secondaries.
Applying the playbook today, the firm advises leaning into quality GPs, including re-upping with existing managers, and remaining open to emerging managers subject to deep due diligence. In secondaries, it cites reports of a large overhang of liquidity-driven sellers at double-digit discounts, while late-stage AI valuations have risen again, calling for strict price discipline and close review of terms. Co-investments face similar scrutiny of round structure, preference stack, dilution and governance. Sector dynamics are diverging: AI and other technology segments benefit from durable tailwinds, while biotech and life sciences have seen a marked slowdown in funding and valuations, which the firm sees as contrarian entry points. Schroders Capital concludes that the appropriate stance is steady, programmatic deployment within a clear pacing framework.
The firm notes that large institutional investors typically allocate 20-25% of their private equity programmes to venture capital. It expects the coming years could produce strong vintages, with potential for a rebound in deal activity, recovering valuations and improving exit markets, while also highlighting the AI wave that followed the late-2022 launch of ChatGPT. Fundraising, however, is constrained: venture firms face a selective market and a tighter liquidity environment, with US venture fundraising falling to about $67 billion in 2023 and the retrenchment continuing through 2024 and 2025, weighing most heavily on emerging and mid-tier managers.
Schroders Capital's playbook rests on five factors. First, it prioritises seed and Series A rounds, which it says offer lower and more stable entry valuations and stronger long-term return potential. Second, it recommends a core-satellite structure, with a core of 10-15 established top-tier global venture firms plus selected emerging managers, given the skewed return distribution. Third, it advises using secondaries and co-investments to increase concentrated exposure to leading start-ups, approached selectively. Fourth, it calls for diversification across investment count, sectors, managers and geographies. Fifth, it stresses cycle discipline: consistent vintage deployment for primary fund commitments, and greater caution on directs, including reserving dry powder during frenzy and at times selling rather than buying secondaries.
Applying the playbook today, the firm advises leaning into quality GPs, including re-upping with existing managers, and remaining open to emerging managers subject to deep due diligence. In secondaries, it cites reports of a large overhang of liquidity-driven sellers at double-digit discounts, while late-stage AI valuations have risen again, calling for strict price discipline and close review of terms. Co-investments face similar scrutiny of round structure, preference stack, dilution and governance. Sector dynamics are diverging: AI and other technology segments benefit from durable tailwinds, while biotech and life sciences have seen a marked slowdown in funding and valuations, which the firm sees as contrarian entry points. Schroders Capital concludes that the appropriate stance is steady, programmatic deployment within a clear pacing framework.
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