Good morning 👋
I’m strapped for time during the week, so the weekend has become when I catch up on most of my reading.
This article on VC following PE was the best thing I read this weekend, and it gave me lots to think about.
Here are the high-level notes and how it may impact you …
P.S. 🙋♂️ I’m doing a megathread on the craziest stories, trends, and themes that are shaping the future of venture capital.
If you have any unique thoughts or views, please let me know so I can give you credit when it goes live.
Today’s highlights
A glimpse into the future for VC as an asset class
Virtue signaling is killing independent thinking
The case for equity-for-services
TOP
PE leads, VC follows ➡️
Every once in a while, you find an article that gives you a glimpse into the future.
This is one of those articles.
If you’re looking for high-signal content that takes ~10 minutes to read, check out the full article here.
If you’re looking for the ~two-minutes notes, look no further:
In both private equity and venture capital, LP capital is funneled to the largest, most experienced funds.
In private equity, the top 10 funds in capital raised captured 36% of the pie in 2024 (Figure 1). In fact, experienced managers absorbed all capital (98%, with just 2% for emerging managers), and 40% went to funds raising $5 billion or more.
LPs are looking for safe havens; regardless of asset class “safe” and established is being prioritized over unproven and new.
The winners have been the firms who have been able to scale and win across multiple asset classes.
In venture, ~20 of capital is going to emerging managers with less going towards smaller funds (<$50m AUM).
We wrote a few weeks ago on how we see this trend playing out (linked here)
Distributions are not keeping pace with the growth of the private equity industry.
While global buyout AUM has tripled over the past decade, distributions as a percentage of NAV have fallen from an average of 29% from 2014 to 2017 to 11% today.
More pressure on GPs to create DPI is creating new liquidity mechanisms (minority stakes, secondaries, continuation funds, NAV loans, etc.).
The future of venture liquidity is through secondaries that are not entirely dependant on the IPO window being open.
Partial realizations are accounting for a larger percentage of total realizations which has a cascading effect that forces GPs to place a larger emphasis on knowing when to sell (vs. buying and holding).
The trend towards public listing supports the narrative that multi-stage VC GPs have become asset accumulators more focused on management fees than carry.
Indeed, fee related earnings (FRE) is the key measure on which listed alternative managers are valued. In Goldman Sachs’ recent report on listed alternative managers (“Valuation fatigue drives recent underperformance”, 19 February 2025), their Sum Of The Parts valuations in Figure 8 show that the overwhelming majority of value is based on FRE, not carry: “we continue to see organic management fees as the most important indicator of forward growth trajectories.”
General Catalyst, a16z, and other megafunds have been rumored to go public, and we expect this trend to continue.
The 2/20 fee structure has been the standard model within private equity. Increasing competition for capital has led to quiet fee concessions, as well as the growing expectation from LPs for fee free / free lite co-investment opportunities.
Bain believes that average net management fees have been reduced by “as much as half since the Global Financial Crisis.”
Low-fee asset manager creep is taking place with firms like Vanguard and others offering alternative products to clients.
The convergence of public and private markets “raises the prospect of something entirely new for private capital: the proliferation of very large firms that charge lower fees for simply tracking the market (beta) vs. trying to beat it (alpha).”
Endowments and large institutions have historically been the mainstay of private market funds.
Private wealth and sovereign wealth funds (SWFs) are new pools of capital in the private market that Bain expects will account for approximately 60% of growth in alternative AUM over the next decade.
“Today, individual investors hold 50% of global capital, but represent 16% of AUM in alternative investment funds.”
Endowments in particular are under pressure with NIL and the changed landscape of college athletics impacting how they plan to allocate their annual budgets.
Sovereign wealth funds have grown in sophistication, they are growing their exposure to alternatives, and they no longer care to be passive investors.
COMMUNITY
Asymmetric upside ⬆️
Here’s a list of things tier-one investors have access to:
Good background knowledge and an understanding of how venture dynamics work
A source of good deal flow so that you see founders first
An elite investor network that you can share notes, deals, and other information with
Mental frameworks to understand company building, scale, and what makes a good vs. great investment
Connections to other high-quality people that become future co-workers or portfolio company employees
Usually that takes 5 years minimum (at least for us), but usually it takes even longer.
That’s why we built this - to speed up the onramp for private investors serious about giving themselves an advantage in the venture game.
2,500 other investors from places like Bessemer, Insight, Accel, and Founders Fund already use it, and we think you should too.
TWEET
HEADLINES
Elon Musk’s xAI acquires X (Pitchbook)
Fintech VC powerhouse Frank Rotman stepping down from QED Investors to found his own startups (TechCrunch)
PitchBook’s university endowment return tracker (Pitchbook)
Bradley Tusk says he makes more money with ‘equity-for-services’ than he did as a traditional VC (TechCrunch)
RECS
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Advanced analytics dashboard on your list
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We really don’t understand why newsletter writers choose any other platform.
You can get started on their free plan at no cost, but if you’re looking for all of their best features …
LINKS
📈 It’s Not Brand vs. Growth: The most successful companies aren’t choosing between brand and growth, they’re using brand to accelerate their growth motion from day one
🌪️ What Kind of Disruption?: The effect on industries will depend on the type of disruptions
🥈 Sizing the US VC Secondaries Market: PitchBook reports that while secondaries offer liquidity to investors and employees, they remain a fraction of the broader VC landscape
🧳 4-Wheel Suitcases and Innovations Hiding in Plain Sight: Digital Native discusses category creation vs. category reinvention
🤔 How I Spent 17,784 Hours in 5 Years as a Startup Founder: Sam Corcos, co-founder & CEO of Levels, was obsessive about tracking his time while building the company and shares his reflections on what changed in the transition from very early-stage to scale up
MEMOS
Chima: Interoperability for AI agents
Superpower: The all-in-one health membership for elite performers
Documenso: The DocuSign killer
Thanks for reading this far and giving us a little bit of your attention this week.
Feel free to unsubscribe whenever this stops becoming valuable to you.
- Clay
(Founder @ Confluence.VC | GP @ Outlaw)
