Fund of funds (FoF) were created to serve as a bridge for LPs to get access to managers they couldn’t back otherwise. But in an environment where funds are not seeing consistent support from their existing LPs, and there are more venture funds than ever, is their role still relevant?

Fund of funds fundraising — say that five times fast! — has declined for years. To compare, traditional U.S. venture firm fundraising set a record in 2022 with $162 billion. U.S.-based VC FoF raised just $400 million in the first quarter of 2023, according to PitchBook, and $3 billion in 2022. This compares to $24.4 billion in 2021 and $33.7 billion — the fundraising peak — in 2017.

It’s not surprising why many LPs have soured on the strategy, said Kyle Stanford, a senior venture analyst at PitchBook. For one, backers of these funds pay a mix of fees to both the FoF and the underlying commitments the FoF manager makes.

“LPs have that double layer of fees. And that extra time it takes after [an LP] invests in the fund of funds and then have it deployed is just something that LPs right now just don’t want to deal with,” Stanford told TechCrunch+.

And with there being so many new firms and funds in the market, the issues surrounding LPs not getting access to attractive VC funds is largely moot and that barrier isn’t really an issue anymore, he said. “There has been way more opportunity to invest in a VC than there has ever been in the past,” he said. “For new LPs coming into the market, they didn’t need to go to a fund of funds to get access.”

But to be clear, even if the funding numbers are down, FoF still holds a place in the future of venture — maybe just a different one than they did traditionally. Multiple firms have started innovating on the model, and FoF can still help LPs get access to the managers they can’t invest in otherwise, albeit for different reasons than before.