Rise of 'zombie' VCs haunts tech investors as plunging valuations hammer the industry

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For some venture capitalists, we're approaching a night of the living dead.

In the VC market, a zombie is an investment firm that no longer raises money to back new companies. They still operate in the sense that they manage a portfolio of investments. But they cease to write founders new checks amid struggles to generate returns.

"The fundraising climate for VCs has cooled considerably, so many firms won't be able to raise their next fund." Since the firms they back are privately-held, any gains VCs make from their bets are paper gains — that is, they won't be realized until a portfolio company goes public, or sells to another firm. The IPO window has for the most part been shut as several tech firms opt to stall their listings until market conditions improve.

With private valuations playing catch-up with stocks, venture-backed startups are feeling the chill as well. "LPs are pulling back after being overexposed in the private markets, leaving less capital to go around the large number of VC firms started over the past few years," Saraccino said.

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