Limited Partners Confront VCs' Liquidity Crisis as 20-Year Fund Lifespans Bite

Limited partners who invest in venture capital firms are facing a liquidity crisis due to the extended lifespan of funds. According to a recent panel discussion at StrictlyVC in San Francisco, prominent limited partners representing endowments, fund-of-funds, and secondaries firms managing over $100 billion combined painted a picture of the venture capital industry's current state. The panel revealed that venture funds are living far longer than initially planned, creating problems for institutional investors. The conventional wisdom was that venture funds should last for 13 years, but in reality, some funds are still active after 15, 18, or even 20 years. Adam Grosher, a director at the J. Paul Getty Trust, which manages $9.5 billion, stated, "In our own portfolio, we have funds that are 15, 18, even 20 years old that still hold marquee assets, blue-chip assets that we would be happy to hold." However, the extended lifespan of funds has led to a liquidity crisis, as billions of dollars sit trapped in startups that may never justify their 2021 valuations. The prolonged lifespan of venture funds is a result of the industry's shift towards longer-term investments. This trend is driven by the increasing popularity of growth equity and the growing number of startups that require extended periods of funding to reach maturity. As a result, limited partners are facing challenges in exiting their investments, as the market conditions and valuations of these startups are not favorable for liquidity. The industry's shift towards longer-term investments has also led to a decrease in the number of emerging managers who can raise funds. According to the panel, emerging managers face life-or-death fundraising challenges, making it difficult for them to secure funding. This trend is a concern for the industry, as it may lead to a decrease in the diversity of investment opportunities and a concentration of power among a few large players. The liquidity crisis facing limited partners has significant implications for the venture capital industry. It may lead to a decrease in the number of investments made by limited partners, as they may be hesitant to commit to longer-term investments. This trend may also lead to a decrease in the number of startups that receive funding, as limited partners may be less willing to take on the risks associated with longer-term investments. The current status of the venture capital industry is marked by a liquidity crisis, which is affecting limited partners who invest in venture capital firms. The industry's shift towards longer-term investments has led to a prolonged lifespan of funds, creating problems for institutional investors. As the industry continues to evolve, it is likely that limited partners will face challenges in exiting their investments, and emerging managers will face difficulties in raising funds. The future of the venture capital industry will depend on its ability to adapt to these changes and find new ways to address the liquidity crisis.