Why This Matters Now
Limited partners are quietly rewriting the rules of venture. Several large institutions now model venture fund lives at 15-20 years, with distributions arriving far later than planned. That lengthening-and the reality that many 2021‑vintage assets are worth far less than stated-pushes LPs toward secondaries for liquidity and forces tighter concentration with “platform” managers. The result: emerging managers face a funding drought, portfolio “messy middle” companies struggle to exit, and CIOs must rethink allocation, pacing, and risk.
Key Takeaways
- Fund duration reset: some LPs now model 18 years, with most cash coming in years 16-18; funds lasting 15-20 years are no longer outliers.
- Valuation reality gap: secondary bids of 2x revenue for companies marked at 20x; effective 80–90% markdowns for the “messy middle.”
- Secondaries as core infrastructure: one LP reported a third of distributions last year came via secondaries, including sales at premiums.
- Capital concentration: Founders Fund alone raised 1.7x the total of all emerging managers; large platforms raised 8x more than emerging funds.
- AI acceleration pressure: companies that preserved cash and missed the AI wave are facing growth headwinds and harsher pricing.
Breaking Down the Shift
Conventional wisdom once assumed roughly 10–13 years for venture funds to wind down. LPs on a recent panel representing endowments, fund‑of‑funds, and a major secondaries platform signaled that window has stretched materially. One institution now assumes an 18‑year life and expects the bulk of capital to come back in years 16–18. Another holds 15–20‑year‑old funds with “marquee” assets that still haven’t distributed. Translation: venture has become far more illiquid, and the fee and governance implications compound over time.
To avoid overexposure, LPs are cutting or slowing commitments and rebuilding allocation models. Where they do deploy, CIOs are tilting toward managers with demonstrated distribution reliability (platform funds) and building systematic secondary programs as a relief valve for liquidity timing risk.
The Valuation Reality Check
The dispersion between reported marks and executable prices is stark. One recent secondary offer priced a company at 2x revenue after its last round valued it at 20x-roughly a 90% discount. Secondary buyers applying public‑market comparables are often marking enterprise software at 4–6x revenue, while many 2021 vintages sit far above that. Managers should expect 80%+ markdowns in the “semi‑winners” that grew 10–15% to $10–$100 million ARR but missed breakout velocity.
AI shifts exacerbate this. Teams that prioritized runway over growth during the downturn now face a market that re‑rates toward AI‑native products and faster compounding. Without a credible AI roadmap, many mid‑tier assets will see slower growth, tighter multiples, and fewer strategic exits.
Secondaries Move From Stigma to Strategy
Secondary markets are now essential infrastructure for both LPs and GPs. Large platforms argue every participant should use secondaries to manage liquidity. Notably, distributions aren’t only coming from distressed sales: one LP said a third of last year’s distributions came via secondaries at premiums to the last round. The operator takeaway: treat secondary sales as a routine portfolio management tool—not a signal of failure—especially to trim oversized single‑name exposure or pull forward DPI.
Governance note: GP‑led secondaries and stakeholder sales create conflicts. Tight valuation policies, independent price discovery, and clear communication with LPACs are non‑negotiable to avoid misalignment.
Power Shifts to Platforms; Emerging Managers Squeezed
Institutions that over‑allocated in 2020–2021 are consolidating around a handful of platforms (Founders Fund, Sequoia, General Catalyst). Data point: in 1H this year, Founders Fund alone raised 1.7x the total capital of all emerging managers; established firms collectively raised 8x more than the emerging cohort. The logic is pragmatic: venture returns are highly dispersed, and platforms offer more predictable pacing and liquidity. Emerging managers with real edges remain fundable, but the bar is high and the buyer set skews to family offices and co‑investors.
Access myths are fading too: “proprietary networks” don’t exist in an era where legible founders are tracked by every tier‑one firm. What still compounds is hustle—embedding in founder communities, technical depth, and a repeatable sourcing + selection engine.
What This Changes for Operators
For LPs, the big shift is liquidity timing. Extending models to 18 years without adjusting commitment pacing risks stacking unfunded obligations against thinner distributions. Building an intentional secondary program can smooth DPI and reduce denominator‑effect whiplash. For GPs, the stigma on selling early is gone; trimming in up rounds to return cash and re‑risk later is increasingly rational. For founders in the “messy middle,” today’s market rewards clear AI adoption paths, capital efficiency, and openness to price resets that align with public comps.
Recommendations (Next 90 Days)
- LP CIOs: Recast venture cash‑flow models to 18 years and stress‑test DPI under 4–6x revenue exit multiples. Set secondary allocation targets and pre‑approve GP‑ and LP‑led processes with your IC.
- General Partners: Publish a liquidity plan per fund (sell‑down thresholds for outsized names, criteria for premium secondaries). Prioritize DPI over paper TVPI and refresh valuation policies to close the mark‑to‑market gap.
- Emerging Managers: Shift fundraising to family offices and offer no‑fee/no‑carry co‑invest rights. Demonstrate “edge density” with auditable sourcing, technical diligence, and founder‑community immersion.
- Founders: If growth is 10–15% and ARR $10–$100M, assume 4–6x revenue valuations. Build an explicit AI roadmap, pursue efficient growth, and be pragmatic on secondaries and structured liquidity to extend runway.
Bottom line: Venture isn’t dead, but the calendar and the math have changed. Treat duration, liquidity, and multiples as first‑order design constraints. Those who operationalize secondaries, concentrate with durable managers, and reprice reality will compound from here; those who wait for 2021 to return will wait a long time.
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