Being a limited partner in today’s venture capital landscape is no easy feat. Those who provide capital to VC funds are navigating an industry in transition: fund durations have nearly doubled, new fund managers are struggling to raise money, and vast sums remain locked in startups that may never live up to their lofty 2021 valuations.
At a recent StrictlyVC event in San Francisco, five leading LPs—collectively overseeing more than $100 billion across endowments, fund-of-funds, and secondary firms—offered a candid assessment of the venture capital sector’s current challenges, while also highlighting new opportunities emerging from the turmoil.
One of the most notable takeaways was the realization that venture funds are lasting much longer than anticipated, creating significant complications for institutional backers.
“People used to expect funds to last about 13 years,” said Adam Grosher, a director at the J. Paul Getty Trust, which manages $9.5 billion. “But in our portfolio, we have funds that are 15, 18, even 20 years old, still holding top-tier assets we’re happy to keep.” Still, he noted, “the asset class is far less liquid than most would assume based on its history.”
This lengthening of fund lifespans is forcing LPs to overhaul their allocation strategies. Lara Banks from Makena Capital, which oversees $6 billion in private equity and venture, shared that her team now plans for funds to last 18 years, with most returns coming in years 16 to 18. Meanwhile, the Getty Trust is reassessing its capital deployment, opting for more cautious allocations to avoid excessive risk.
Another approach is to actively manage portfolios through the secondary market, which has become a critical part of the ecosystem. “Every LP and GP should be engaging with the secondary market,” said Matt Hodan of Lexington Partners, a major secondary firm managing $80 billion. “If you’re not, you’re missing out on a fundamental part of today’s liquidity landscape.”
The valuation gap (it’s bigger than you think)
The panel was frank about a tough reality in venture: there’s often a wide chasm between the valuations VCs assign to their holdings and what buyers are willing to pay.
Marina Temkin of TechCrunch, who moderated the discussion, recounted a recent conversation with a VC: a portfolio company once valued at 20 times revenue was recently offered just 2 times revenue in a secondary sale—a staggering 90% markdown.
Michael Kim, founder of Cendana Capital, which manages nearly $3 billion focused on seed and pre-seed funds, put it this way: “When a firm like Lexington takes a hard look at valuations, they may see 80% write-downs on what GPs thought were their winners or near-winners,” referencing the “messy middle” of venture-backed startups.
Kim described this “messy middle” as companies growing 10% to 15% annually with $10 million to $100 million in recurring revenue, which were valued at over a billion dollars during the 2021 surge. Yet private equity and public markets now price similar software businesses at just four to six times revenue.
The AI boom has only intensified these issues. Companies that chose to “conserve cash and weather the downturn” have seen their growth slow, while “AI has taken off and the market has moved on,” Hodan said.
“These businesses now face a tough crossroads—if they don’t pivot, they could encounter major obstacles or even fail.”
The drought for new managers
Raising capital is particularly challenging for first-time fund managers, noted Kelli Fontaine of Cendana Capital, who cited a striking figure: “In the first half of this year, Founders Fund raised 1.7 times more than all emerging managers combined. Established managers collectively raised eight times as much as all new managers.”
The reason? Institutional LPs, who once quickly committed large sums to VCs during the pandemic, are now prioritizing quality and concentrating their investments in big-name funds like Founders Fund, Sequoia, and General Catalyst.
“Many of our peers who have invested in venture for years became overexposed to the asset class,” Grosher said. “These pools of capital, once thought to be endless, have started to pull back.”
On the bright side, Kim pointed out that the “tourist fund managers” who rushed in during 2021—like the Google VP who launched a $30 million fund because a friend did—have mostly exited the scene.
Is venture really an asset class?
The panel also discussed Roelof Botha’s recent claim at TechCrunch Disrupt that venture isn’t truly an asset class. They generally agreed, with some reservations.
“I’ve argued for 15 years that venture isn’t an asset class,” Kim said. Unlike public markets, where most managers cluster around a target return, venture returns are highly dispersed. “The top managers dramatically outperform the rest.”
For organizations like the Getty Trust, this wide range of outcomes makes planning difficult. “It’s tough to build strategies around venture capital because returns are so unpredictable,” Grosher said. Their solution has been to invest in platform funds for more consistent returns, while also backing emerging managers to seek outperformance.
Banks offered a different perspective, suggesting that venture’s role is evolving beyond being just a “small spice in the portfolio.” She noted, for example, that Makena’s exposure to Stripe acts as a hedge against Visa, since Stripe could disrupt Visa’s business with crypto technology. In other words, Makena uses venture to manage disruption risk across its holdings.
Selling shares sooner
Another topic was the growing acceptance of GPs selling shares during up rounds, not just at distressed prices.
“A third of our distributions last year came from secondary sales, and these weren’t at discounts,” Fontaine said. “We sold at premiums to the last round’s valuation.”
“If an asset is worth three times your fund, consider what it would take to reach six times,” Fontaine said. “If you sell 20%, how much of the fund do you return?”
This discussion echoed a conversation TechCrunch had with veteran pre-seed investor Charles Hudson, who noted that early-stage investors are increasingly thinking like private equity—focusing on cash returns rather than chasing huge wins.
Hudson shared that one of his LPs asked him to analyze how much he would have made if he’d sold his shares at the A, B, and C rounds instead of holding on. The analysis showed that selling everything at Series A didn’t work—the compounding from staying in the best companies outweighed early exits. But Series B was a different story.
“You could have a fund returning more than 3x if you sold everything at Series B,” Hudson said. “And honestly, that’s a strong result.”
The stigma around secondary sales has also faded. “A decade ago, selling in the secondary market implied you’d made a mistake,” Kim said. “Now, secondaries are a standard part of the playbook.”
Fundraising strategies in a tough market
For those trying to raise new funds, the panel offered some hard truths and practical advice. Kim advised new managers to “connect with as many family offices as possible,” describing them as “often more willing to take a chance on a new manager.”
He also recommended offering co-investment opportunities—especially fee-free, no-carry deals—to attract family offices.
Kim pointed out that it’s “extremely difficult to persuade a university endowment or a foundation like [the Getty Trust] to back a small $50 million fund unless you have an exceptional background—maybe as a co-founder of OpenAI.”
When it comes to selecting managers, the panel agreed: proprietary networks are a thing of the past. “No one has a truly proprietary network anymore,” Fontaine said. “If you’re a visible founder, even Sequoia is tracking you.”
Kim said Cendana focuses on three factors: a manager’s access to founders, their ability to identify the best ones, and, crucially, their “hustle.”
“Networks and expertise don’t last forever,” Kim said. “If you’re not constantly working to build and refresh your network, you’ll fall behind.”
He gave the example of Casey Caruso from Topology Ventures, a former Google engineer who spends weeks in hacker houses to get to know founders. “She’s technical and even competes in their hackathons—and sometimes wins.”
He contrasted this with “a 57-year-old fund manager living in Woodside, who simply won’t have that level of founder access.”
As for which sectors and locations matter most, the consensus was that AI and American dynamism are leading, with fund managers based in San Francisco—or at least with strong ties to the city—having an edge.
Still, the panel acknowledged the ongoing strength of other hubs: Boston for biotech, New York for fintech and crypto, and Israel’s tech scene, “despite current challenges,” Kim said.
Banks added that she expects a resurgence in consumer startups. “Platform funds have mostly ignored this area, so it feels like we’re due for a new wave,” she said.
