📶 evergreen funds and the idea of "permanent" capital

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Evergreen funds are set to capture an estimated 30% of AUM within three years.

These funds provide private wealth investors liquidity options and allow GPs a continuous capital base - the biggest difference from the typical closed-end fund structure that requires constant fundraising.

In 2021, Sequoia made the choice to debut an evergreen fund structure, and since then more funds have followed suit. Fast forward to today, and even mega funds like Apollo and Coller Capital have launched their own evergreen vehicles.

Why it matters: The move to evergreen funds signals a larger shift for venture capital as a whole.

In our opinion, evergreen vehicles are a shift to a “venture capital 2.0” model focused more on long-term value creation, sustained partnerships, and capital patience.

Traditional VC funds operate on timelines, and if you aren’t able to create distributions in 10 years (ideally less), you’re SOL. That often creates incentives for companies to take earlier exits or face capital constraints.

Evergreen funds, on the other hand, enable funds to support companies over indefinite timelines, capturing full growth potential and eliminating “exit pressure.” This flexibility is increasingly essential in a market where high-growth startups often stay private for longer periods, necessitating an adaptable approach to venture investing.

Evergreen models also introduce liquidity mechanics that address a long-standing LP concern: access to capital without relying solely on the typical 10-year exit cycle.

By offering periodic redemption windows, evergreen funds allow LPs to realize gains gradually, creating a valuable alternative to traditional VC structures. This move may set a precedent that encourages other funds to consider similar models or adopt features that align investor incentives with long-term value creation rather than short-term paper returns.

What happens next: The adoption of evergreen models may lead to a larger rethinking of venture capital.

As we have written about in the past, firms are already experimenting with structures to provide more liquidity options to LPs. This evergreen momentum is likely to accelerate, with more VCs adapting by either launching continuation vehicles or adjusting fee structures to align better with performance rather than fundraising.

While evergreen funds provide LPs with more flexibility, the model also holds VCs accountable by tying management fees to fund performance. If an evergreen fund underperforms, LPs can withdraw, shrinking the fund and driving managers to remain actively engaged in portfolio performance, arguably creating more accountability than in traditional closed-end structures.

We should make this very clear though: very few funds can and should warrant an evergreen structure. Sequoia has built their brand over 40+ years, and they’ve distributed billions back to LPs.

They can do whatever they want; most funds can’t do the same, or their LPs will walk.

Either way, this is something we’ll be watching over the next few years to see who else is capable of wrangling capital for this type of structure.

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Here are the results from our poll question in yesterday’s piece:

Do you create some sort of financial model to help founders plan how they should spend their cash?

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15 Votes