Jed | Breed VC

raising Fund II has never been harder. only 12% of first-time VC funds from the 2022 vintage have raised a second fund so far. here are 7 reasons i think so many struggle 1. they're better at fundraising than investing some managers are great at telling LPs what they want to hear. they have a compelling story, a convincing deck, and a thesis that sounds amazing. but can they actually pick companies that will generate returns? that's a very different skill. 50 out of 99 VC funds failed to return invested capital after fees, while 62 out of 100 failed to outperform public markets after fees and carry. the problem is that you won't know the final results for years. by the time Fund II fundraising comes around, LPs are already judging you on early portfolio performance, the quality of your decisions, and whether your original thesis is playing out. you need to show progress before the exits happen. 2. they have no real edge in deal flow venture returns are driven by a tiny number of exceptional companies. less than 4% of invested capital in its dataset of venture-backed exits generated returns of 10x or more. everyone wants those winners. but how are you actually going to find them and get onto their cap tables? if your strategy is just going to events, asking for intros, and competing for the same deals as everyone else, you're going to have a hard time. you need a real reason why the best founders would come to you, ideally before everyone else knows about them. otherwise, you're often left competing for deals that stronger investors have already passed on. 3. they don't have a plan for their winners finding a great company is only half the job. you also need enough ownership for that company to make a meaningful difference to your fund. i think this is where follow-on strategy becomes really important. as an existing investor, you get to see how founders execute, how the team works, and whether the business is actually delivering on its promises. that information can give you a real advantage when deciding where to put more capital. of course, doubling down doesn't always make sense. valuation, dilution, and concentration risk still matter. but if you've found an exceptional company, you should have a plan for how to benefit from being right. 4. they can't explain why LPs should choose them this one is pretty funny. VCs constantly ask founders what makes their startup different, why they'll win, and why anyone should invest. then some of those same investors go out to raise their own funds and struggle to answer exactly those questions. what's your investor-market fit? what's your edge? why should an LP trust you instead of giving that money to an established manager? especially when you're starting out, you need a convincing answer. and the fundraising environment isn't making things easier. only 81 first-time US VC funds closed through Q3 2026. 5. they're competing in a market where capital keeps concentrating this is probably the toughest part because even good managers can't control it. through Q3 2026, US funds of $500M+ captured 78.1% of all VC capital raised, despite representing just 6% of funds closed. firms raising their fourth fund or later took 88.2% of the capital, while the median fund size fell to $10M. think about that. huge amounts of money are flowing into venture, but most of it is going to a relatively small group of established firms. a new manager can have a strong thesis, good founders, and a promising portfolio and still struggle to raise the next fund. 6. they underestimate how much LP relationships matter i've seen how important this is. some managers only start building LP relationships when they're ready to raise, but by that point, they're already behind. LPs want to know how you think, how you make decisions, how you handle problems, and whether they can trust you over the long term. regular updates, honest reporting, and actually understanding what matters to each LP can make a huge difference. ideally, by the time you start raising Fund II, your existing LPs already know exactly why they want to invest again. and if they don't, you should understand why long before fundraising starts. 7. they don't think enough about liquidity this one is becoming increasingly important. a fund can have impressive paper returns, but LPs can't reinvest unrealized gains. TVPI matters, especially early on, but DPI tells a different story. at some point, investors want to see actual distributions. and when exits slow down, even funds with strong portfolios can struggle to return capital. that doesn't mean every Fund I needs substantial DPI before raising Fund II. but managers should understand their portfolio's path to liquidity and be able to explain it clearly to LPs. here are a few investors who recently raised their second funds and are worth following: @JedBreed, @jakobdiepen, @brettcalhounn, @yoheinakajima, @jamoses92, @kola_aina