Limited partners are observing a shift in venture capital as firms increasingly concentrate investments in a few major companies like OpenAI and Anthropic. While this strategy deviates from traditional diversification, investors view it as a feature of the power law business model rather than a cause for alarm.
Investment pacing has accelerated significantly, with many funds returning to market every 12 to 18 months instead of the historical 24 to 36 months. Managers are also upsizing existing funds mid-cycle to accommodate larger check sizes, as seed round costs have doubled.
The secondary market has evolved into a critical third pillar of liquidity alongside IPOs and M&A. Investors now view secondaries as a legitimate tool for returning capital, a shift from previous years when such sales were often associated with financial distress.
Despite the dominance of large funds, emerging managers continue to raise capital, though fund sizes for new entrants are typically smaller, ranging from $5 million to $50 million. Investors emphasize that these new managers must maintain a highly differentiated strategy to secure funding.
