SpaceX priced at $135 on June 11, started trading the 12th, raised about $75 billion, closed its first day at $2.1 trillion. Largest IPO ever. And LPs still aren’t writing checks.
GPs read that as LPs being slow. It isn’t slowness. LPs aren’t re-upping on a headline. They’re not going to re-up until there’s a wire.
Alexa reminded me of something a future guest, Trish at Babson, told us: When that capital flows back in, it flows back into the full pot. It isn’t an LP’s to redeploy. And we were in the red as an asset class, so venture doesn’t walk into that room with a credit. It walks in with ten or fifteen years to explain.
That’s the part we skip as GPs. We raised an enormous amount against very few liquidity events. It takes time for that to shake back out into the ecosystem. One listing doesn’t do it. Multiple might.
Three things to look out for in this DDQ conversation:
The exit that funds the middle of the book is being structured out of existence. Early stage GPs keep telling me the $300 to $500 million outcome has gotten rare enough to be its own kind of unicorn. Acquirers got smart. A carve out of fifteen or twenty or fifty million to the founders is cheaper than a purchase price for the company. So the top of the book got better this summer and the middle got worse. Different companies, different funds. One doesn’t pay for the other.
Nobody has a signal for future potential, including me. Alexa shared that Aaron at 50 South made the point that every GP shows up impressive on past success, and his job is finding the subset with real future potential. I don’t think this market is digging into what that actually looks like. My best answer is the founder magnet, and it works like the blue car thing. Somebody says blue car and then you see blue cars all day. Some people become a node in an ecosystem that fast, and I think the better allocators are going to start noticing who does. That’s a hunch about where they’ll look. It isn’t a signal yet.
Legible has become its own trap. Break your differentiation down far enough to be legible to an LP and it starts to sound like everything on every VC website. I said that on air and I haven’t solved it. The least bad move is the one Giada at SFERS gave Alexa: ask a friend why they invested in you, instead of reverse engineering what you think LPs want to hear.
Where I’m not settled. I took a victory lap on episode 82, where we called that LPs who went direct would drift back to fund of funds, but only the ones offering more than a basket. It’s happening. Foundations, endowments, family offices, now public pensions. Then the LP who told me that asked whether a fund of funds rush is itself a peak signal, since it was one in 2020 and 2021. I said maybe. That’s why you don’t time the market, and if it helps emerging managers, I’ll take it. Alexa’s read is cleaner than mine. She thinks it’s the barbell going consensus, that venture is multiple asset classes now, and the early stage sliver gets outsourced to people who do it for a living.
Listen to the full DDQ with Alexa here: https://swimmingwithallocators.com/podcast/why-lps-still-arent-buying-the-venture-comeback/
with gratitude,
Earn Sweat