📶 the death of the opportunity funds

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Good morning 👋

And welcome back to work.

We asked on Friday how many of you are using management fees to hire engineers. The results were a little different than what we were expecting (results at the bottom).

Today we’re covering opportunity funds, why they got popular, why they’re currently unpopular, and what we think happens next.

Let’s get into it.

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Opportunity funds were designed during the bull market as an easy way for LPs to double down on their winners in a venture portfolio. If VC math holds, ~10% of holdings will account for ~90% of returns; opportunity funds offered a way for LPs to put more capital towards the top-performing 10% of companies in a given portfolio.

That was all good and well during the bull market, but things have changed, and LP stances towards continuation funds have changed too.

Startup valuations are still largely inflated, the IPO market is frozen, LPs are still waiting for distributions, and VCs are either scaling back or shifting their continuation fund strategies.

CRV, for instance, is returning over half of its $500 million opportunity fund, citing unsustainable valuations. Others, like Lightspeed, are still raising billions but focusing on secondary stakes and turnaround plays rather than traditional follow-on investments.

The old playbook of pouring cash into maturing companies is being rewritten in real time.

Why it matters:

What happens next:
VCs will likely continue to reduce their reliance on opportunity funds or reinvent them to suit the current market.

We could see firms that used to follow the playbook of investing in growth-stage companies shift to more niche or secondary opportunities. The rise of secondary stakes, LP liquidity solutions, and even distressed asset plays will become more mainstream.

However, firms that double down on trend-driven sectors like AI and deep tech could carve out success with opportunity funds—if they can convince LPs that those bets are worth the risk. Ultimately, this is a period of experimentation, where some GPs will thrive by reimagining what opportunity funds can do, while others will scrap the model entirely.

LPs have all of the control in today’s fundraising market, and they will have the final say.

If you’re serious about making a name for yourself in venture, you’re going to need some help.

That’s why we built this business (especially our private investor community).

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Thanks for reading this far and giving us a little bit of your attention this week.

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- Clay

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

For VCs: do you have an engineer as part of your team?

🟨⬜️⬜️⬜️⬜️⬜️ Yes - just one (2)

🟩🟩🟩🟩🟩🟩 Yes - more than one (7)

🟨🟨🟨⬜️⬜️⬜️ Nope (4)

13 Votes