Venture Capital Is Recovering—But the Liquidity Problem Remains

The venture capital industry entered 2026 with renewed optimism.

After several years of valuation resets, markdowns, and fundraising headwinds, new data suggests that venture fund performance is finally moving in the right direction. According to Carta's Q1 2026 VC Fund Performance Report, median fund values increased across nearly every recent vintage, fundraising activity accelerated, and the overall outlook for venture investors improved significantly.

Yet beneath the encouraging headlines lies a more complicated reality: while paper gains are growing, actual cash returns remain scarce.

Carta recently published their detailed 2026Q1 VC Fund Performance report. I reviewed the report, and these are my takeaways.

For the full report, see: https://carta.com/data/vc-fund-performance-q1-2026/

A Welcome Rebound in Fund Performance

For much of the past three years, venture capital managers have been navigating a difficult environment. Following the valuation boom of 2020 and 2021, startup prices corrected sharply beginning in 2022, leading to declining marks across many venture portfolios.

That trend now appears to be reversing.

Carta's data shows that median Total Value to Paid-In Capital (TVPI)—a key measure of venture fund performance—rose for nearly every recent fund vintage during Q1 2026. Even more encouraging, TVPI has increased consistently across vintages from 2017 through 2024 over the past six quarters.

This suggests that the industry's recovery is not isolated to a handful of funds or sectors. Instead, the improvement appears broad-based, reflecting healthier startup valuations and improving market sentiment.

Rising Startup Valuations Are Driving the Recovery

The explanation behind improving fund performance is relatively straightforward.

As startup valuations increase, the value of venture portfolios increases as well. Over the past 18 months, private-market valuations have steadily recovered, particularly at the upper end of the market. High-growth companies—especially those benefiting from AI-related investor enthusiasm—have seen significant valuation expansion.

For venture funds holding these assets, stronger valuations translate directly into higher TVPI figures and improved reported performance.

In other words, many funds are worth more today simply because the companies they own are worth more.

That is undoubtedly good news for both general partners (GPs) and limited partners (LPs).

The Liquidity Challenge Hasn't Gone Away

However, higher valuations tell only part of the story.

One of the most important themes in Carta's report is the continuing gap between unrealized gains and realized returns.

While TVPI measures the combined value of realized and unrealized assets, LPs ultimately care about cash distributions. This is measured by Distributed to Paid-In Capital (DPI)—the amount of money actually returned to investors.

Here, the picture is far less encouraging.

Many funds from the 2019 and 2020 vintages have generated minimal distributions, and a substantial share have yet to return any capital to LPs at all. Even among older 2017 and 2018 vintage funds, relatively few have achieved a 1x DPI, the threshold at which investors have received back their original investment.

The implication is clear: venture portfolios may be appreciating, but exits remain limited.

Until IPO markets fully reopen and acquisition activity accelerates, many venture investors will continue waiting for paper gains to become real returns.

Stronger Fundraising Signals Growing Confidence

Another notable takeaway from the report is the recovery in venture fundraising activity.

Carta tracked 86 new venture funds closing during Q1 2026, collectively raising approximately $3.9 billion. This represents the strongest first quarter for new fund formation since 2022.

If this pace continues, 2026 could become the strongest fundraising year since the post-pandemic venture boom.

The data suggests that LP confidence is gradually returning. Investors appear more willing to commit capital to new venture funds, particularly as portfolio valuations stabilize and broader market conditions improve.

For emerging managers, this is an encouraging signal after several years of one of the most challenging fundraising environments in recent memory.

The Era of Concentration Continues

While fundraising activity is improving, capital distribution remains highly uneven.

Large funds continue capturing a growing share of venture commitments. According to Carta, funds with more than $100 million in commitments accounted for 57% of all capital raised in 2025. Just eight years ago, that figure stood at 31%.

This trend highlights an increasingly concentrated venture landscape.

Smaller funds still represent the majority of vehicles being formed, but a relatively small number of large funds command most of the industry's capital. For emerging managers, differentiation and track record development remain more important than ever.

The venture industry may be recovering, but competition for LP dollars remains intense.

What This Means for Venture Investors

The latest data paints a picture of an industry that has largely moved beyond the worst effects of the 2022 correction.

Fund values are rising. Startup valuations are recovering. New funds are being raised at a healthier pace. On many metrics, venture capital appears to be entering a new growth phase.

At the same time, one critical challenge remains unresolved: liquidity.

Until venture-backed companies generate meaningful exits through IPOs, acquisitions, or secondary transactions, much of the industry's performance will remain unrealized.

For GPs, the focus now shifts from preserving value to creating liquidity. For LPs, patience remains essential.

The venture recovery is real—but its long-term success will ultimately be measured not by rising marks, but by cash returned to investors.

Key Takeaways

• Median venture fund performance improved across nearly every recent vintage.

• Startup valuation growth is driving stronger reported returns.

• Fundraising activity accelerated, with 86 new funds raising $3.9 billion in Q1 2026.

• Capital continues concentrating in larger venture funds.

• Liquidity remains the industry's biggest challenge, as DPI levels lag far behind valuation growth.

• The next phase of the venture recovery will depend on exits, not just rising portfolio marks.