The limited partners who provide the capital to venture firms \u2014 the \u201cmoney behind the money\u201d \u2014 are feeling great right now. They\u2019re in uncharted territory in many ways, but also potentially exceedingly lucrative territory.<\/p>\n
Normally, LPs typically spread their bets across many firms to diversify their own portfolios. They write checks to emerging managers and established ones, to generalist firms and specialists. The goal is a strong return, but also to minimize risk.<\/p>\n
That\u2019s the typical playbook. But typical is out the window. OpenAI and Anthropic\u2019s valuations have shot up so quickly that nearly everyone has piled into the same two companies on the way up, often inside the same venture firm, despite the longstanding venture convention of avoiding investments that conflict with one another. No one is complaining, either. The LPs I speak with seem unbothered by this big gamble, given the potential returns; they\u2019re expecting a bonanza.<\/p>\n
But they do see danger ahead, even if they describe this as a \u201cyellow light\u201d situation, and they\u2019re uneasy about how quickly VCs are coming back to raise new funds.<\/p>\n
I talked about all of it recently with Beezer Clarkson of LGT Capital Partners, a Zurich-based diversified asset manager, and Amit Bhatti of TrueBridge, a Chapel Hill firm that focuses solely on venture. This conversation has been edited for length.<\/p>\n
These are strange days \u2014 exciting but also scary. How are you feeling about your roles right now, and your place in this startup ecosystem?<\/p>\n
Beezer Clarkson: It\u2019s very busy, but I wouldn\u2019t say it\u2019s scary. There\u2019s a lot of change and a lot of variables at play. I love venture, so I find the chaos fun. I\u2019ve been doing this for a couple of decades, so seeing the cycles makes it less scary. You appreciate that these things happen, and that we should enjoy the upside, because sometimes there\u2019s downside, and the up is a lot more fun than the down.<\/p>\n
Amit Bhatti: If anything, it\u2019s exciting. Venture is sometimes looked at as a niche, and now that AI is all-consuming, all the attention is on venture. This feels like our moment more than it is like, \u201cOh gosh, what\u2019s going to happen?\u201d The pace of investing and the valuations may be different, but really meaningful stuff is happening, and all the attention is focused on this corner of private equity.<\/p>\n
Your funds all hold the same brands now, OpenAI and Anthropic, multiplied across however many funds you back, and your job is to keep your institutions diversified. How do you think about that? Obviously it\u2019s great right now, but if things turned, it would be less great.<\/p>\n
Amit Bhatti: Venture has always been a power law business, so I actually view the concentration as a good thing. If we were getting to the maturity of one of our funds and there were still lots of tiny positions, something\u2019s gone wrong. Our funds that are 10-plus years old are starting to consolidate into a few names. There\u2019s a lot of Databricks, a lot of SpaceX, a lot of Stripe. In this generation of funds, I would hope there\u2019s a lot of Anthropic and a lot of OpenAI. That\u2019s a feature, not a bug. Not every one of these companies is going to work out, but that consolidation is typical. What\u2019s different is how quickly it\u2019s happened. I don\u2019t view it as an immediate panic signal.<\/p>\n
Beezer Clarkson: At the early stage, you still see quite a diversity of opportunity sets, and the dollars are smaller. It aggregates up into the same companies, but early-stage funds obviously aren\u2019t doing the big late-stage stuff, so you have more diversity there, if that\u2019s what you\u2019re looking for.<\/p>\n
Funds that invested on four-year cycles have shrunk that to three, then two, then 18 months. Is the pacing okay, or is it concerning?<\/p>\n
Beezer Clarkson: We\u2019re seeing funds come back on one-year pacing, which is fast. The norm was probably two to two and a half years. Some funds are deploying much faster because they\u2019re taking concentrated, big-check positions. That could be a worrisome sign. It could work out, we don\u2019t know, but it\u2019s typically harder to do a one-year vintage and get it right.<\/p>\n
Amit Bhatti: Similar for us. I would have said 24 to 36 months was roughly normal. Now 12 to 18 is not crazy for some of the funds going really quickly. A lot of funds are bumping up their fund sizes mid-cycle, which is definitely unusual. That\u2019s partly because rounds have gotten so large. If Anthropic is raising a giant quantum of capital and you put 20% of the fund into it, you\u2019re obviously going to be ahead of pace. Seed round sizes have gone up almost 2x, too, so if you want to lead, you\u2019re writing 2x the check. It\u2019s definitely a yellow light. It gives us a little bit of heartburn.<\/p>\n
But when we look at what these managers actually bought, the numbers are different. The last time we had accelerated pacing, there was a lot of investing in zero-revenue crypto moonshots. Now we\u2019re seeing a lot of companies go from zero to $100 million in revenue, which was totally unheard of before.<\/p>\n
If you\u2019ve got a great manager who comes back every year but the returns are still on paper, can you say \u201ccall me next time,\u201d or do you lose your seat at the table?<\/p>\n
Beezer Clarkson: It\u2019s very hard to leave a manager and then come back. It happens, but it\u2019s more typical to downsize your check. In 2021, a lot of LPs said, \u201cIf I was going to give you $10 million, I\u2019ll do $5 million, because $10 million was for two years.\u201d In our portfolios, the pacing gets pulled through, so we think about our pacing as well as yours.<\/p>\n
Amit Bhatti: Same here. We\u2019re building out a calendar of when we expect to make commitments, so if someone goes way off that map, we need to make sure the capital is there. You see people downsize or communicate it up front. It\u2019s hard to say you\u2019re sitting it out altogether, because then you\u2019re not reliable capital. That\u2019s also why you\u2019re seeing upsizes; managers don\u2019t want to come back and say they\u2019re raising a whole new fund, so they bump up the old one.<\/p>\n
Beezer Clarkson: People also rotate out of venture sometimes because capital calls keep running with no distributions coming back, and they still have to meet operating commitments, whether it\u2019s the endowment, the hospital, or the foundation. That puts a lot of strain on those situations.<\/p>\n
LPs like time diversification, yet a lot of funds were raised in recent years, including that backed startups at high valuations during the pandemic. How are those funds doing, and how would you describe 2026 so far?<\/p>\n
Beezer Clarkson: The 2021 vintages are still early, five years in, but they argue against doing one-year funds. Some will catch a piece of an AI company and look excellent, but your odds of getting it right in one year are just tougher, and the valuations were extreme.<\/p>\n
Amit Bhatti: If I look at the last 15 years of our portfolio, I wouldn\u2019t bet on the COVID vintage being the best one. But a couple of breakouts will come from it. OpenAI was around in that era, and Cursor started pretty far back, so they\u2019re in some of those funds. And liquidity has started flowing. The past two years were definitely slower, but SpaceX is the headline, Cerebras was a big exit this year, there have been a couple of other IPOs, and a lot of M&A. We\u2019re seeing $10 billion-plus M&A exits, a $60 billion one [with Cursor]. Liquidity is going beyond just IPOs.<\/p>\n
How are your venture fund managers thinking about secondaries? If I were a VC, I\u2019d have been tempted to take money off the table in OpenAI or Anthropic.<\/p>\n
Beezer Clarkson: Secondaries have become much more sophisticated in venture over the last, call it, five years. It\u2019s localized in the top handful of companies, but it\u2019s much more prevalent than before, which I think is good, because the ecosystem needs liquidity options. Venture is predicated on that, and if you wait 20 years for an IPO, that is not what structurally we all thought it could be. They\u2019re also happening at multiple levels now. LPs sell stakes of their GPs, a strip of their portfolio, and the taboo around it is less.<\/p>\n
Amit Bhatti: It\u2019s the third leg of liquidity now: IPOs, M&A, secondaries. Private equity has always had a well-developed secondaries market, and venture didn\u2019t. It was kind of a dirty word. You were only selling if you were distressed. Then people were holding the bag in 2021 and thought, \u201cI should have sold.\u201d Now more managers use it as a tool, and more judiciously. If you still believe it\u2019s the power law company, you\u2019re probably not exiting the whole position. But if you can sell 20% of your position and return your fund, you should probably do it.<\/p>\n
There\u2019s a lot of founder selling and employee tenders \u2014 often very early into the company\u2019s \u201cjourney.\u201d How do you feel about that?<\/p>\n
Amit Bhatti: We were talking before about the analogy to crypto, where things got very difficult in part because employees were paid in tokens that were liquid immediately. What\u2019s your motivation to stick around when things get hard? So I think it\u2019s great that there are employee tenders, especially for companies that have been around a long time, like Stripe and Databricks, with a very clear financial picture. For them to offer partial liquidity to employees is totally reasonable. But a lot of the enforcement falls on the lead investors. Investors we back have told companies, \u201cWe don\u2019t want you to do an employee tender right now.\u201d Those conversations are happening behind the scenes, and people have learned some lessons from last time. It\u2019s all based on leverage, though. If the founder has incredible leverage . . .<\/p>\n
Forget it.<\/p>\n
Amit Bhatti: Yeah.<\/p>\n
When these companies go public and employees get liquid, will they become partners or competitors to your venture managers? These employees have amazing networks. <\/p>\n
Beezer Clarkson: We\u2019ve seen it multiple times: when a company becomes very productive, employees can become LPs or GPs themselves. It\u2019s entirely possible there\u2019ll be a whole new raft of emerging managers backed by people coming out of OpenAI and Anthropic. It happened in the Google days. But being an LP means signing up for many millions of dollars and a multi-decade business. <\/p>\n
Amit Bhatti: The real estate part [given the soaring cost of home prices in San Francisco] is going to be tough. But those people stay in the ecosystem, investing in others, building new companies, starting new firms. That\u2019s why no other place is taking SF\u2019s place anytime soon.<\/p>\n
Housing costs here in San Francisco have shot up so fast. Do we price out the next generation of founders, and does the next hub end up in New York or somewhere else?<\/p>\n
Beezer Clarkson: History would argue that the density effect in the Bay Area is a great pull. Maybe it moves out of San Francisco and back into the suburbs. Back in the day, YC was in Mountain View. New York obviously has its own very deep tech scene, but there\u2019s such a density here that it\u2019s been really hard to push back against.<\/p>\n
A handful of venture funds now lock down most of the committed capital from limited partners. Is there a wedge in for emerging managers?<\/p>\n
Beezer Clarkson: There are still first-time and emerging managers, funds one through three, being raised this year, last year, the year before. You still need a differentiated point of view, a reason for being. Fundraising has gotten harder, but we see them being funded, and the fund sizes are just smaller. Fifty percent of the money might go to the big funds, but if your average first fund is $25 million to $50 million, there can still be enough of those to add up to $1 billion.<\/p>\n
Amit Bhatti: There are people raising $5 million or $10 million right here in SF, maybe formalizing their angel investing. A lot of really well-known funds started with a $5 million fund. It\u2019s much better for an emerging manager to build the track record, prove out the thesis, your access and your judgment with whatever capital you have, and then fund two will be easier to raise. If you try to raise $50 million or $100 million on day one, you\u2019re creating a giant hill to climb.<\/p>\n
Beezer Clarkson: If you\u2019ve only angel invested, that\u2019s a different story from spinning out of a platform where you have an installed base of LPs who know you. Those managers typically raise more.<\/p>\n
Can you talk about specific kinds of emerging managers you\u2019ve backed, and what made you write the check?<\/p>\n
Amit Bhatti: People define \u201cemerging\u201d very differently. We\u2019ve backed founders who are still running their companies and investing on the side. We\u2019ve backed people leaving a bigger firm for something earlier. And we\u2019ve backed extremely young GPs, 22 and 23 years old, who have really close access to the next generation of AI-native founders. They started an accelerator program at MIT, Harvard, and Stanford, and the first couple of batches had Cursor and Mercor in them. They\u2019re young, but they\u2019re around an incredible density of talent. The VC job is sourcing, picking, winning, and they did a pretty decent job of picking when there was no money involved. Success begets success in venture, so we were happy to give them a shot.<\/p>\n
Beezer Clarkson: There\u2019s much more flexibility now. I remember a time when an LP wouldn\u2019t fund somebody who had a job and was also investing, and people are open to that now. I\u2019ve been investing in emerging managers, along with established ones, for 14 years, and they run the whole gamut, from an operator-turned-investor raising $10 million, to a spinout raising a few hundred million [dollars]. It\u2019s interesting when they\u2019re still operating, because it gives them insights. The trick is whether they\u2019re doing what they need to do to win the right to be on the best cap tables.<\/p>\n
Amit Bhatti: Especially early stage, there\u2019s no one-size-fits-all. You can be part-time, you can be diversified, you can be concentrated. There are more outs in the deck, if you will, for returning something that\u2019s small and experimental.<\/p>\n
What\u2019s the smallest check you\u2019ll write to a fund, and how much of a fund will you take?<\/p>\n
Beezer Clarkson: Given our program, it\u2019s hard to do less than $5 million. I\u2019ve generally taken the view that if you\u2019re [representing] too much of a fund, there are challenges for the GP going forward, so I\u2019d want to be no more than 20%. There are situations where I\u2019d consider more.<\/p>\n
Amit Bhatti: Three to five million for us, and on occasion smaller in very specific scenarios. We don\u2019t really care about concentration if it\u2019s the right scenario. We\u2019ll do half or all of it. But Beezer\u2019s right that it\u2019s not ideal for the GP, and we tell them up front to diversify their LP base. We\u2019ve done a fund where we were half the capital, and the next fund we were closer to 20%, because they did well.<\/p>\n