‘Our funds are 20 years old’: Limited partners confront VCs’ liquidity crisis

Core Insights - The venture capital landscape is experiencing significant valuation discrepancies, with some companies seeing offers as low as 2 times revenue compared to previous valuations of 20 times revenue, indicating a 90% discount in the secondary market [1] - Limited partners (LPs) are adapting to longer fund lifespans, with some firms modeling fund lives of up to 18 years, and are reassessing their capital allocation strategies to avoid overexposure [2][4] - The current fundraising environment is particularly challenging for emerging managers, who are struggling to attract capital compared to established funds [9][10] Valuation Discrepancies - A venture firm reported a portfolio company valued at 20 times revenue was recently offered just 2 times revenue, highlighting a drastic valuation drop [1] - The "messy middle" of venture-backed companies, which are growing at 10% to 15% with annual recurring revenues between $10 million and $100 million, are facing markdowns of up to 80% [7][8] Fund Lifespan and Allocation - Venture funds are lasting nearly twice as long as before, leading to challenges for institutional investors [6] - Firms like Makena Capital are now modeling fund lives of 18 years, with most capital returning in the last few years [2] Fundraising Challenges - Emerging managers are facing a tough fundraising environment, with established funds raising significantly more capital [9][10] - Institutional LPs are now prioritizing quality over quantity, concentrating investments in larger, established funds [10] Market Dynamics - The rise of AI has intensified competition, with companies that did not adapt facing serious challenges [9] - The stigma around secondary sales has diminished, with a third of distributions coming from secondaries sold at premiums rather than discounts [14][16] Manager Selection and Networking - The panel emphasized the importance of networking and access to founders for emerging managers, as proprietary networks are no longer effective [18] - Successful managers are those who actively engage with founders and adapt to changing market conditions [18] Sector Focus - Current investment interest is heavily focused on AI and American innovation, with traditional strengths in biotech, fintech, and crypto in specific regions [19]