General Catalyst closes $6 billion fund to invest in tech startups

In a promising sign that the venture capital drought is coming to an end, General Catalyst, the influential Silicon Valley VC firm known for backing hits like Stripe and Snap, has closed nearly $6 billion fund to invest in technology startups, the Financial Times reported over the weekend. This influx of funding brings a glimmer of hope to the thousands of non-AI startups grappling to secure new investments, despite billions flooding into the generative AI space.

The news comes two weeks after another Silicon Valley heavyweight Andreessen Horowitz raised $7.2 billion for new venture funds to invest in late-stage and growth tech startups. The fund represents a strategic pivot for Andreessen Horowitz as it redirects its focus from squarely back to the core of tech innovation.

According to the Financial Times report, General Catalyst has broadened its horizons, extending its reach to startups globally and delving into sectors like healthcare and education, often overlooked by other VC giants due to entrenched competition. In a bold move, the firm acquired the healthcare system Summa Health in January.

General Catalyst’s stellar performance has kept it firmly perched atop the VC food chain, even as the industry begins to stir its massive reserves of “dry powder.” With its $6 billion fund, the firm now rubs shoulders with fellow VC giant Andreessen Horowitz, which recently closed a $7.2 billion fund. Conversely, former heavyweight Tiger managed to only secure $2.2 billion for its latest fund, a mere fraction of its target. According to Pitchbook, the General Catalyst and a16z funds represent the largest in the industry since the close of 2022.

Venture capital funding has languished in recent years due to soaring interest rates and a volatile IPO market. Pitchbook data reveals that US firms raised just over $9 billion in the first quarter of this year, a far cry from the $81 billion amassed in 2023, which itself was half of what was raised in 2022, marking the lowest venture funding since 2016. Nevertheless, General Catalyst continues to command respect, its innovative strategies keeping institutional investors intrigued, even as its competitors feel the heat.

US VC firms entered this year with approximately $311 billion in unspent funds, a result of the staggering sums raised in 2021 and 2022. According to a recent KPMG report, US startups raked in over $36 billion in VC investments in the first quarter of this year, a 16% increase from the same period.

Meanwhile, investments in AI remain a beacon of hope in the startup realm. Just last week, news broke that Sequoia Capital would participate in a fundraising round for xAI, Elon Musk’s venture aimed at challenging OpenAI. Sources suggest the round could swell to $6 billion, potentially valuing the company at around $18 billion. This marks Sequoia’s second major wager on Musk, following its $800 million investment in his Twitter takeover.

With the tech startup landscape showing signs of resurgence, General Catalyst’s latest funding coup not only bolsters its position as a key player in the venture capital arena but also underscores its unwavering commitment to fueling innovation in the tech ecosystem.

General Catalyst Team (Source: General Catalyst)