How long does it take for VC funds to return money to LPs?
2 key baseline assumptions:
VCs raise money (typically) in 10-year funds with the option to extend to 12 years.
Startups are taking longer and longer to IPO.
That's the structure. LPs into venture funds invest with their eyes open (hopefully) about how long this is gunna take.
But consistently we hear things like "recent VC funds have given no money back to LPs!"
...correct. That's sort of the point of the asset class.
Chart below covers two views on liquidity. The first shows the percentage of funds in each vintage that have even $1 of DPI. So right now, 33% of funds started in 2021 have at least some DPI.
Second view is the percentage of funds at 1x DPI, meaning they have returned the initial LP capital to investors. So 16% of VC funds from 2017 are sitting at 1x or greater as of the end of last year.
Early DPI isn't always great! If you're getting some money back from a VC after 2 years, either something went amazingly right or (more likely) a company got acquired for not much. And often that little return is recycled anyway.
After 5 years, about 50% of VC funds have some DPI. But only ~7-8% have 1x DPI.
Do we need more liquidity from venture? Absolutely. But we shouldn't expect it from funds started in 2022 and onward...and those are mostly the funds with AI-native companies in the portfolio.
The earlier ones...ya, those wells seem too dry at this point.
Damn this thing takes forever 😁
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