White Paper
The Great VC Evolution:
Multi-Asset, Multi-Stage, Multi-Entry, Multi-Region
Don't Panic: The VC Model Is Evolving, Not Dying –
A Calm Exploration of Mega-Fund New Strategies –
for Funds of All Sizes
Executive Summary
Venture capital is undergoing a fundamental evolution. Once defined by specialists making a few early bets and waiting years for IPOs or acquisitions, top firms are now transforming into diversified, multi-asset investment platforms. Venture investors today are behaving more like full-stack asset managers – operating across equity and debt, public and private markets, early and late stages, primary and secondary investments, and even multiple regions, as in mature and emerging markets. It’s a more dynamic and holistic approach to venture.
Building on what I shared in my books: “VC Evolve”, “Contrarian Cycles”, and “Unlocking Liquidity”, this contrarian narrative explores why the classic VC model is being upended, not dying, and what it means for VCs, LPs, and founders. We’ll examine the shift to multi-asset, multi-stage, multi-region, multi entry strategies; debate whether VCs should span equity and credit, primary and secondary markets; and consider if the next IPO wave might bloom in an emerging market rather than on the Nasdaq.
Importantly, we’ll discuss practical implications for smaller funds – how to ride this wave thoughtfully, without the panic to imitate or copy the mega firms that evolved in their own way. Along the way, we’ll revisit the power law of VC returns and propose that this new proposed model offers a more risk-adjusted approach.
Furthermore, the paper emphasizes a paradigm shift towards active liquidity management by VC firms, leveraging periodic structured liquidity windows, secondary market transactions, and proactive portfolio rebalancing, yes like hedge funds!
Additionally, advanced technological tools powered by artificial intelligence (AI) and machine learning (ML) are significantly enhancing venture firms' ability to manage portfolios actively. These AI-driven tools enable predictive analytics for startup and macroeconomic forecasting, real-time algorithmic portfolio rebalancing, optimized capital allocation, and precise timing for exit strategies. Such capabilities, previously exclusive to hedge funds and sophisticated asset managers, are now becoming accessible even to smaller and mid-sized VC firms.
By presenting a comparative financial analysis between traditional and emerging VC models, this paper illustrates how the new approach reduces the dependency on the highly unpredictable power law distribution traditionally associated with venture capital returns. Instead, it advocates for a more balanced, risk-adjusted approach that combines high-return potential with strategic risk management practices. This approach particularly benefits smaller and mid-sized VC funds, enabling them to enhance returns, mitigate volatility, and provide better-aligned value to both their limited partners (LPs) and portfolio companies.
The stakes are high. As one industry observer put it: the firms that embrace this model will define the next decade of tech – “not just by backing great companies, but by building, acquiring, and compounding them.” Are we witnessing an evolution of venture capital… or the rise of something entirely new? Let’s dive in.
Table of Contents
From Classic VC to Multi-Asset, Multi-Stage, Multi-Region Platforms
Should VCs Invest in Equity and Debt, Public and Private, Early and Late, Primary and Secondary?
Embracing (and Bending) the Power Law: A New Risk-Adjusted Model
Secondaries and Liquidity: Why VCs Must Become Investment Bankers at Exit
Implications for Smaller Funds: Adapting Without Imitating the Megafunds
A Tale of Two $100M Funds: Traditional vs. New Model – Projected 10-Year Outcomes
1. From Classic VC to Multi-Asset, Multi-Stage, Multi-Region Platforms
For decades, the traditional VC model was straightforward: raise a fund, invest primarily in early-stage startup equity (Series A or seed rounds), and sit tight for a big exit. Firms stuck to what they knew – often a single stage (early) and region (e.g. Silicon Valley). This classic approach was essentially a cottage industry of generalist investors chasing a handful of “golden ticket” startups each year. Venture funds would make a portfolio of high-risk bets, then hope that one or two would become huge successes (the famed unicorns) and carry the fund’s returns. If you hit a Facebook or a Google, the fund won. If not, returns lagged.
Today, that model is being turned on its head. Leading VC firms are dramatically expanding their scope in three dimensions – asset classes, stages, and geographies – creating a new multi-asset, multi-stage, multi-region model. A recent Bloomberg report confirmed this trend: firms like Lightspeed, Andreessen Horowitz (a16z), Sequoia, General Catalyst, and Thrive Capital have all moved away from the conventional narrow VC approach. How? By registering as investment advisers (RIAs) and restructuring themselves to allow far more flexibility in what and where they invest. Becoming an RIA frees a firm from the old 20% cap on “non-VC” assets and other constraints. In practice, this means these venture firms can now invest without limits in public stocks, secondary shares, debt instruments, buyout deals and roll-ups – activities traditionally associated with hedge funds or private equity. As one commentator quipped, they can now act like Blackstone in a hoodie.
Crucially, this isn’t just legal maneuvering – it reflects a strategic sea change in how top VCs view the world. Instead of only seeding startups and waiting passively, firms are building or acquiring companies outright, taking majority stakes, operating businesses, and investing across the entire lifecycle. Andreessen Horowitz (a16z), for example, registered as an RIA back in 2019 and has since built out capabilities ranging from a wealth management division to late-stage crypto funds, even participating in Elon Musk’s take-private deal for Twitter (a classic private equity-style buyout). Sequoia Capital reorganized itself into a single evergreen fund in 2022, abandoning the traditional limited-term fund structure to hold public shares longer and compound returns, and providing liquidity to LPs in public shares distributions of their portfolio companies. General Catalyst went so far as to acquire an entire health system (Summa Health) and now pointedly calls itself a “global investment and transformation company,” not a VC firm. Thrive Capital launched a new $1B entity (“Thrive Holdings”) specifically to build and buy AI-driven companies rather than just invest in others. In short, the largest VCs are behaving less like niche startup financiers and more like diversified conglomerates or PE firms, with portfolios that might include seed investments, majority acquisitions, public equities, secondaries, credit instruments, and even investment banking-like activities, with offices around the world.
What’s driving this expansion? At a high level, venture capital has had to mature as the market matured. Software “ate the world,” technology now permeates every industry, and startups stay private far longer – so pure early-stage investing in one region no longer captures the full opportunity. The mega-funds realized they risked missing out (or getting diluted) if they didn’t play in growth rounds, secondary markets, international markets, and even the public markets. They also saw chances to create value in new ways: by incubating companies in-house, rolling up multiple startups, or revitalizing legacy businesses with tech (actions historically in the domain of PE firms). In other words, VCs are becoming “full-stack” platforms rather than passive investors. They want to own outcomes, not just place bets. As one analysis summarized, it’s now “less about spraying capital, more about owning outcomes. VCs are becoming full-stack platforms.” In practical terms, that means a top-tier venture firm today might invest in a seed-stage startup, lead its later funding rounds, buy a chunk of its shares from an earlier investor via a secondary deal, and even hold its stock post-IPO – a level of end-to-end involvement that old-school VCs never attempted.
This multi-dimensional strategy also extends to multiple stages of company development. Big firms no longer limit themselves to Series A or B; they raise separate funds or use a single large fund to do everything from seed deals to pre-IPO funding. For instance, Lightspeed Venture Partners historically was known for early-stage investing, but in 2023–24 it raised over $7 billion across new funds to deploy at various stages and even hired a former Goldman Sachs executive to run a capital markets and secondaries team. The firm officially changed its SEC status to RIA in 2024, explicitly to “shift away from the classic VC model” and enable these multi-stage, multi-asset investments. In doing so, Lightspeed joins peers like a16z and Coatue that have crossover funds (investing in both private and public tech companies) and multi-stage strategies. The lines between venture capital, growth equity, and private equity are blurring. Top VC firms now launch seed incubators, growth funds, crossover funds, and even SPACs or hedge fund-like vehicles – all under one roof.
Finally, leading VCs are expanding geographically, becoming multi-region operators. There’s growing recognition that the next big winners can arise anywhere, not just in Silicon Valley. Over the past decade, firms like Sequoia and Lightspeed built out global footprints – Sequoia Capital had affiliate arms in China, India, and Southeast Asia (which grew so successful they eventually spun off as independent firms), and Lightspeed now has teams in the US, Europe, India, Israel, and China. Andreessen Horowitz, which long stayed close to Silicon Valley, announced in 2023 it would open its first international office in London to tap into the UK tech and crypto scene. The impetus is clear: to cover emerging markets and find opportunities beyond the saturated mature markets.
According to industry data, venture funding in emerging regions has skyrocketed – e.g. the Middle East saw record venture investment recently, with Saudi Arabia becoming the top emerging market globally for VC fundraising. In fact, Saudi Arabia attracted nearly $400M in venture capital in a recent period, ranking #1 among emerging markets in capital raised. It’s no surprise that global investors want exposure to such growth. The new model VC firm thus often has a primary base (say, the U.S.) and secondary hubs in other regions to source deals or support portfolio companies. The logic is to arbitrage differences in markets: for example, a U.S. VC might primarily invest at home but also back later-stage rounds or buy secondary shares of top performing startups in India or MENA where valuations may be more reasonable and tech adoption is rising. Conversely, an emerging market VC might predominantly invest locally but seek stakes in U.S. or European startups to capture upside in those markets via co-investment partnerships or secondary shares.
Of course, going global comes with challenges – navigating different cultures, regulations, and competitive landscapes. Even Sequoia, after decades of success abroad, restructured in 2023 to let its China and India units become independent (acknowledging that deep local focus is needed). But broadly, the trend is toward global connectivity. The venture industry is no longer siloed by region: capital and knowledge flow more freely, and a startup in Jakarta or Riyadh might have Sand Hill Road investors, while a London or San Francisco company might court Gulf sovereign funds or Asian VCs. Multi-region strategies allow VCs to chase growth wherever it sprouts – be it a fintech boom in MENA or Latin America or AI talent in Eastern Europe – and to hedge against downturns in any single market. It’s a far cry from the days when a VC fund’s mandate was confined to, say, “within 50 miles of Menlo Park.” The new mantra: have a footprint in both mature markets and high-growth emerging markets. A firm might, for example, keep its primary focus and team in its home region (where it has the strongest network), but also run satellite operations or partnerships in emerging/mature hubs to capture those opportunities. This hybrid approach can yield the best of both worlds – strong local expertise at home and selective bets abroad.
2. Should VCs Invest in Equity and Debt, Public and Private, Early and Late, Primary and Secondary?
One of the most striking aspects of the new model is the breadth of asset classes and stages that venture firms are now embracing. It raises a provocative question: should a venture capital firm essentially become a “one-stop shop” investor for its portfolio companies, participating in everything from early equity to late-stage debt? The answer from the mega-funds seems to be yes. By registering as RIAs, firms like a16z and Lightspeed gained the freedom to invest in public equities, corporate debt, real assets, you name it. Andreessen Horowitz has used this flexibility to buy publicly traded crypto tokens and even make governance plays in public tech companies. Lightspeed’s RIA status similarly allows it to hold public stocks beyond the 20% limit and even do leveraged buyouts that classic VC funds could not. In effect, these firms can now back a company at any point in its life cycle – from two founders in a garage (seed equity) to pre-IPO mezzanine financing (debt or preferred equity) to post-IPO stock purchases.
Why would VCs want to invest in debt or public stocks? Several reasons: First, it’s a way to put large amounts of capital to work with potentially lower risk than venture equity. As funds have grown into the billions, it’s hard to deploy all that money solely into tiny startup rounds. So, they move “upmarket” – for example, lending $50M as venture debt to a late-stage unicorn can generate a steady return (interest + warrants) with less downside, or buying $100M of a tech company’s publicly traded shares can be a strategic move if they believe it’s undervalued. We are seeing venture firms effectively create their own crossover funds, blurring into hedge fund territory. This mirrors what crossover investors like Tiger Global and Coatue have done from the other direction – those hedge funds started doing VC; now VCs are doing hedge fund activities. Second, the ability to invest in multiple asset types gives VCs more ways to support their portfolio companies. For example, if a star startup faces a cash crunch, a VC firm might extend a credit line or purchase some of the founder’s or early employees’ shares (secondary) to provide liquidity, rather than letting the startup take an onerous loan from a bank or a down-round from elsewhere. The venture firm thus acts as a financial partner through thick and thin, not just an early shareholder.
This multi-asset approach essentially turns a VC firm into a mini diversified fund. It’s not without controversy – purists argue that venture investors may lack expertise in debt underwriting or public market timing. But many VC firms have hired seasoned professionals from other domains (the way Lightspeed hired Goldman’s secondaries head, as noted) to bring in those skills. The upside is a more balanced portfolio at the fund level. Instead of 100% high-risk illiquid startup equity, a fund might allocate, say, 70% to traditional venture deals and 30% to a mix of growth equity, secondary purchases, or even structured products. Some pioneering VCs are experimenting with structured equity or revenue-based financing for startups – providing capital in forms other than common stock, which can yield returns more akin to debt (with downside protection and capped upside). By doing so, they hope to smooth out returns and reduce the reliance on a few home-run exits.
Importantly, the multi-asset strategy isn’t simply about financial engineering; it’s about strategic advantage. Consider an example: a venture firm invests in a startup at Series A, and the company does well. Traditionally, the VC might invest again in Series B or C if they can. But under the new model, the firm has more options – it could lead a growth round with capital from a growth fund, buy secondary shares from an early angel to increase its ownership, or even invest in a competitor or supplier of that startup (something old VC charters might forbid, but a broader asset mandate might allow via Chinese walls). It could also provide venture debt to bridge the startup before an IPO. All these moves deepen the firm’s involvement and potentially its returns. Essentially, the VC firm can double- and triple-down on winners in ways beyond just pro-rata equity. This is one reason firms like Sequoia and a16z have raised opportunity funds or twin funds – to put more money into their best companies at later stages (rather than ceding that ground to SoftBank, Tiger, or PE firms). Now, with RIA status, they aren’t limited to just buying more common stock; they can craft all sorts of deals (e.g. structured secondaries with downside protection, or purchasing public shares post-IPO to maintain ownership).
So, should VCs do all of this? For large firms with vast resources, the argument is compelling. The playing field of innovation has widened (across stages and geos), and staying narrowly in one lane could mean missing big opportunities. The new multi-asset model lets venture firms capture value wherever it emerges. That said, it requires operating more like an investment bank or multi-strategy fund, which is a different game. The top firms are effectively becoming hybrid venture-private equity firms. They register as RIAs, hire bigger teams with varied expertise, and accept more complex LP arrangements. This model isn’t easily copyable by smaller VC funds (we’ll address smaller funds later), but it’s clearly where the industry’s frontier is. As one VC observer noted, the new RIA-driven approach enables launching and acquiring companies, using secondaries to build positions, and “thinking in terms of platforms rather than portfolios”. The classic VC who only picks startups and waits is an endangered species at the highest levels of the game.
3. Re-examining Regional Focus: Home Turf vs. Emerging Markets
The venture industry’s evolution isn’t only about assets and stages – it’s also about geography. Traditionally, many VC firms specialized in a region: Silicon Valley funds, European funds, China funds, etc., each sticking to their knitting. But as capital and innovation globalize, VCs are rethinking regional strategies. Should a VC that’s strong in a mature market (like the U.S.) also invest in emerging markets? Conversely, should an emerging market VC extend its reach beyond its home base? These questions have no one-size answer, but the trend among larger firms is to straddle both mature and emerging ecosystems.
There are a few forces at work here. First, opportunity seeking: Some emerging markets are now producing unicorns and large exits, making them attractive hunting grounds, and some are not directly correlated to Silicon Valley’s ups and downs! For example, India and Southeast Asia in the 2010s saw a boom – companies like Flipkart, Ola, Grab, Gojek, etc., reached multi-billion valuations. U.S. and global VCs (Sequoia, Tiger, SoftBank, etc.) flooded into those markets to participate. More recently, the Middle East/North Africa (MENA) region has risen on the radar. MENA’s VC funding hit record highs in the past couple of years, led by the UAE and Saudi Arabia. Saudi Arabia in particular “held the top spot for MENA investment and ranked first globally among emerging markets” for VC funding recently. This reflects how much capital (including government and sovereign fund money) is pouring into the tech ecosystem there. A global VC firm cannot ignore such trends—LPs increasingly expect them to have a view on India, China, MENA, etc., not just Silicon Valley.
Second, portfolio diversification: investing across regions can hedge against local downturns. If the U.S. venture market faces a valuation correction, perhaps investments in, say, Latin America or Africa might still perform (since their cycles can differ). Geography is a diversification vector just like asset class. Many LPs allocate to “emerging market VC” as a category for this reason, and some large VC firms have created dedicated emerging market funds or teams. For instance, Sequoia’s India unit (now rebranded Peak XV) was backed by Sequoia’s global LP base as a way to get exposure to the India/SEA opportunity. Similarly, some Middle Eastern venture firms are now investing in U.S. startups as a way to diversify outside their home region – a recent example is Saudi’s STV or UAE’s Mubadala Ventures, or even smaller ones like Sukna Ventures co-investing in Silicon Valley deals. The lines go both ways.
However, balancing multi-region operations is tricky. Local expertise and networks are crucial in venture capital, perhaps more than in other asset classes. The old adage was “invest in what you can drive to” – while that’s no longer literally followed, it underscores that on-the-ground presence matters. That’s why many large firms establish local offices staffed with natives of that ecosystem. Without that, a purely fly-in approach can miss nuances or lead to being outcompeted by local VCs. So the emerging model for multi-region is often: have a strong base in one region (your primary market), and approach other regions via partnerships or dedicated local teams. For example, a U.S. fund might partner with a top Latin American fund to co-invest, rather than opening its own office in São Paulo. Or it might hire an investing partner based in Dubai to source Gulf region deals, while keeping final decision-making at HQ. This hub-and-spoke model can grant access without stretching the firm too thin.
We are also seeing some venture firms from emerging markets expanding outward. For instance, some of the big Chinese VC firms (like Shunwei, CDH) started investing in India and Southeast Asia. Likewise, leading MENA funds have begun investing in Sub-Saharan Africa and South Asia. The motivations include finding less crowded markets and leveraging comparative advantages (e.g. knowledge of developing market dynamics). An interesting approach is what one might call “primary and secondary” regions: a firm identifies one primary region where it leads deals and is a major player, and one or two secondary regions where it only co-leads or follows other leads. This tiered focus ensures it doesn’t overextend. A Silicon Valley VC, for example, might say: “Our primary market is North America (we lead deals here), our secondary market is Latin America (we’ll invest in LatAm startups but usually alongside a local lead, unless we have high conviction).” Similarly, an Asia-based fund might make Europe a secondary market via occasional deals.
Is this worth it? If done well, yes. It can give a firm first-mover advantage in spotting cross-border trends. Take the example of Chinese and Indian tech – U.S. VCs who had exposure to those markets learned about super-apps, mobile payments, etc., before those trends hit the West. Likewise, an emerging market VC investing in Silicon Valley can bring back best practices to its region. There’s a clear knowledge transfer benefit. And if a portfolio company from one region wants to expand globally, having a multi-region investor can smooth that path – the VC can connect a Middle Eastern startup with U.S. customers, or help a U.S. SaaS company enter Asia, etc.
That said, the cost-benefit calculationdepends on fund size and strategy. Large funds (> $1B) have the resources to go multi-region; smaller funds may be better off focusing where they know best. We’ll discuss smaller funds later, but it’s worth noting that trying to invest globally without sufficient infrastructure can be a mistake. Sequoia’s model worked (until recently) because they basically cloned their culture in each region with local teams. But many others failed at global expansion in the past. The new generation of mega-funds is convinced it’s necessary to be global – both Andreessen and Lightspeed explicitly mention international ambitions – yet they tread carefully. In summary, operating in both mature and emerging markets is becoming the norm for top-tier VCs: being globally aware and present is now part of the venture playbook. Those who succeed will be the ones who localize their approach in each market while leveraging a global platform’s advantages.
4. Are the Next IPOs Coming from Nasdaq… or Emerging Markets?
Perhaps one of the most contrarian ideas floating around venture circles today is that the center of gravity for tech IPOs might be shifting. For decades, the dream exit for any startup was to ring the opening bell on the NASDAQ or NYSE – the U.S. exchanges were the holy grail of liquidity. But we’re now seeing signs that high-growth companies (especially those outside the U.S.) may choose to list on emerging market exchanges instead, such as Saudi Arabia’s Tadawul or Dubai’s DFM.
This shift is partly fueled by regional dynamics. The Gulf region, flush with capital from oil wealth, is eager to develop its capital markets and diversify its economies, prompting governments and regulators to actively court tech companies to list locally by offering attractive valuations and ample liquidity. A notable early example was Jahez, the Saudi online food delivery startup, which in January 2022 became the first Saudi tech company to IPO locally. Jahez debuted on Saudi Tadawul’s Parallel Market (Nomu) with a valuation of around $2.4 billion, signaling that homegrown tech firms could successfully tap regional markets for exits—something previously uncommon in the Middle East. The success of Jahez set the stage for an even more dramatic milestone two years later when Talabat, the leading online food delivery giant in MENA, listed on the Dubai Financial Market (DFM) with a market capitalization exceeding $10 billion. Talabat’s IPO, significantly oversubscribed by local and international institutional investors, underscored a broader shift: large-scale tech IPOs no longer needed to default to Nasdaq or NYSE. These landmark listings have positioned Riyadh and Dubai as credible venues for tech IPOs, redefining the landscape and solidifying the Gulf region’s ambition to become a global hub for technology-driven companies seeking major public-market liquidity.
Following Jahez and Talabat, other Gulf-based tech-enabled companies have been preparing for IPOs at home – from fintech startups like Tamara (a Saudi buy-now-pay-later firm) to e-commerce players like Salla, both cited as candidates in the near future.
According to regional VCs, this is a dramatic change from just a few years ago. “Five years ago, IPOs were not considered a viable exit path for startups in the region… acquisitions were the only clear exit,” notes one MENA venture investor. But today, “IPOs are now the dominant exit strategy [in MENA], and we’re seeing more late-stage startups actively preparing for public markets.” This shift is driven by the maturation of startups (more hitting late-stage scale) and the openness of Gulf exchanges to list them, even in the form of regulated SPACs, that cooled down in the US! Another local VC adds that if regulators continue to adapt, Saudi Arabia and the broader region could position themselves “as a leading destination for high-growth IPOs, attracting not just companies built in the region but those from around the world looking for a strong public market to scale.” In other words, the vision is to make Riyadh or Dubai an attractive listing venue even for foreign tech companies – much like how Hong Kong has drawn Chinese tech IPOs, or how London sometimes attracts European listings. This is a bold idea, but not impossible. If valuations and liquidity in these markets rival New York, a founder might choose, say, a Dubai listing especially if much of their investor base is in the Middle East or if they want to stand out rather than being one of many on Nasdaq.
There are also macro factors at play. U.S. markets have had periods of drought for tech IPOs (for instance, 2022–2023 saw very few major IPOs due to market volatility). During such droughts, a regional market that’s buoyant can step in to fill the gap. In 2021–2022, while the U.S. IPO window was largely shut outside of SPACs, the Gulf markets boomed with large offerings (mostly state-owned enterprises and insurers, but it built retail investor enthusiasm). If that momentum is redirected to tech companies, we could indeed see a scenario where a Middle Eastern exchange hosts the next big IPO that, in another era, would have gone to Nasdaq.
That said, challenges remain. Companies that list in emerging markets need to ensure global investors can access those markets. For very large tech IPOs, there’s an expectation of participation from U.S. and international institutional investors. If those investors are not comfortable or set up to trade on Tadawul or DFM, it could limit the pool. However, mechanisms like dual listings or depository receipts could bridge that. We might imagine a future startup doing a dual IPO in New York and Riyadh simultaneously, for example. Another consideration is the regulatory environment – ensuring that listing requirements in these emerging markets are compatible with high-growth tech businesses (which often have losses, unique share structures, etc.). Regional regulators are indeed revising frameworks to accommodate such companies. In Saudi Arabia, for instance, Nomu was created as a lighter exchange with easier entry for younger companies (Jahez listed on Nomu first). Dubai and Abu Dhabi have also launched tech-focused listing programs and eased rules to get more startups on board.
From a venture capitalist’s perspective, the rise of local IPO markets in places like the Middle East is a welcome development. It creates more exit optionality. Previously, if you invested in a MENA startup, you assumed the exit would likely be an acquisition (often by a global player, e.g. Uber acquiring Careem) or at best a NASDAQ listing via SPAC. Now there’s a real path to an IPO in the region, potentially at favorable valuations given the liquidity and enthusiasm there. This can result in better outcomes for both VCs and founders – founders don’t have to sell out early (they can go public and keep growing independently), and VCs can see mark-ups and liquidity without waiting for a U.S. IPO that may never come. As one VC put it, “with IPOs now a real option [here], founders are no longer forced to sell prematurely… they can scale further and exit at a much higher valuation through public markets.”
Will NASDAQ/NYSE lose their dominance? Likely not overall – the U.S. will remain the deepest capital market. But we may well see a regionalization of tech exits, where companies list where their business and investors are. In Asia, this is already true (most Chinese tech giants now list in Hong Kong or Shanghai; Indian startups list in Mumbai). The Middle East is catching up to that pattern. For venture investors, this means when making investments in emerging markets, they can credibly underwrite an IPO exit locally, which was not the case a decade ago. It’s a profound change in exit calculus. It also means VC firms might need to develop in-house expertise in managing IPO processes on those exchanges – basically, acting like the investment bankers or advisors to prepare a startup for a Saudi or UAE listing. And if global investors begin paying attention to those markets, VCs might arbitrage valuation differences (perhaps taking a company public in Dubai at a higher multiple than it would get in the U.S.).
In summary, expect more IPO opportunities outside the traditional venues. Silicon Valley’s elite might soon be flying not just to New York for bell-ringing, but to Riyadh and Dubai for celebratory listings. As one Gulf VC noted, it’s about creating “a broader mix of exit strategies” – IPOs, M&A, secondaries all complementing each other. The best companies will have multiple options, and they’ll choose whatever maximizes value while aligning with their long-term plans. Venture capitalists must be ready to support any of those routes, anywhere in the world.
5. Embracing (and Bending) the Power Law: A New Risk-Adjusted Model
At the heart of venture capital’s economics lies the Power Law – the concept that a few huge winners will account for the vast majority of returns in a portfolio. In a typical VC fund, the distribution of outcomes is highly skewed: one or two investments may return 10×, 20×, even 50×, while many others return less than 1× (some zero). As a result, “a small number of investments will generate the majority of returns, while the rest either break even or fail.” Empirical data backs this up: often just 5-10% of a fund’s companies produce 90%+ of the profits. This is why VCs “spray” many bets – to have enough shots on goal that one hit can pay for all the misses.
The classic VC model is built entirely around this power law principle. The fund strategy is essentially: invest in ~20-30 startups, assume maybe 15 will flop, a few will do okay, and 1-2 will be massive hits that make the fund. This is the “hope for 1–2 unicorns to carry the fund” approach. It’s inherently high-risk, high-variance. You’re banking on outliers, which means as a VC you accept that most of your investments will not pan out – but the one that does could return your whole fund and then some. LPs have historically bought into this logic, tolerating low hit rates in exchange for the chance of very high multiples if a fund backs the next Google.
What’s changing in the new model is not that the power law disappears – it’s that firms are finding ways to reshape the returns curve to be a bit more balanced and risk-adjusted. The multi-asset, actively-managed approach is, in a sense, an attempt to mitigate the extremes of the power law. Rather than pure “spray and pray,” the new model is more “concentrate and cultivate.” As one commentator described, the traditional spray-and-pray of making 25 bets hoping for two unicorns is being “replaced by strategies that are more deliberate, compounding, and operationally engaged.” The RIA-enabled firm doesn’t just wait for an outlier; it tries to create outliers (through hands-on company-building, roll-ups, etc.) and also to generate moderate wins along the way (through secondaries, buyouts of smaller companies, etc.).
Think of it this way: Classic VC returns = a few huge spikes + long tail of zeros. New model returns = a few spikes + many more mid-level bumps + fewer zeros. The area under the curve might be similar or greater, but the distribution is less skewed. It starts to look a bit more like a private equity fund’s return profile (where most deals return something, a few do very well, a few lose a bit – a more normal-like distribution) as opposed to a lottery ticket model. This is appealing to many LPs, especially as VC funds have gotten so large. A large fund delivering a stable 3× can sometimes be preferable to one swinging for a 5× but risking a 1× – it depends on the LP’s goals.
One way the new model reduces downside risk is by actively managing losers and middling companies. Traditional VCs might write off a struggling startup and move on. But a VC-turned-operator might attempt a pivot or even an acqui-hire sale to recoup some value. General Catalyst’s approach of acquiring legacy companies or merging portfolio firms is an example of trying to salvage value where a pure VC might not. Additionally, by owning more of the company’s lifecycle, a multi-stage investor might be able to engineer earlier partial exits. For instance, if a portfolio company is doing okay but not a likely unicorn, a VC firm might sell that company to a PE firm or larger tech company for, say, a 2× return – not a home run, but a solid outcome that realizes value from a would-be “B-player” in the portfolio. These kinds of mid-level exits (2-3× outcomes) traditionally didn’t move the needle in a VC fund (since one 50× would dwarf ten 2× results), but if you can generate more of them, they start to add up and increase the floor of fund performance.
On the upside end, the new model still wants the power law winners – it’s not rejecting them at all. In fact, one could argue the new model increases the probability of capturing outsized winners because the firm can invest at many stages. They might catch a rocketship startup early, and then keep investing through its growth rounds to maintain or increase ownership (something old VC would often cede to later investors). By the time of exit, the firm could own, say, 15-20% of a unicorn (thanks to follow-ons and secondaries), whereas a classic VC fund that only did the Series A might own 5%. Owning more of the winner magnifies the fund return. So even under power law dynamics, the multi-asset strategy can yield a bigger payoff from the same outlier company. Furthermore, if the firm builds a company internally that becomes a big success (imagine they incubate the next OpenAI within their studio), they might own an even larger chunk. So the potential for outsized returns remains – it’s just complemented by more base hits and controlled bets.
In essence, the new model can be seen as a “barbell within a fund”: part of the portfolio still pursues high-risk, high-reward startup equity (the traditional power law bets), while another part is allocated to lower-risk, more predictable-return investments (like debt or later-stage deals). The result is a more mixed return profile. For example, instead of needing a 10× fund return from one IPO, maybe the fund targets a 4× overall return with contributions from various sources: maybe 2× from one big IPO and the other 2× from a combination of secondary sales, small exits, and interest income. This is arguably a more “risk-adjusted” way to achieve strong returns – the variance is lower, yet the expected value can be similar. It’s akin to an investor diversifying their personal portfolio: pure VC model is like 100% in moonshot stocks, new model is like a blend of equities, bonds, and alternatives to smooth out performance.
Of course, the proof will be in the pudding. These new mega-funds haven’t yet completed a full 10-year cycle to conclusively show their risk-adjusted returns. Skeptics might point out that adding later-stage investments could actually drag down returns (since later-stage or public investments might have lower multiples than an early-stage hit). If not done carefully, a multi-asset VC fund could end up with mediocre PE-like returns (~2×) and miss the chance of a true 10× fund. The counterargument is that those mega VCs are selecting their late-stage bets with the same high bar – they might only deploy late-stage capital into companies they believe can still 5× from that point (e.g., investing in Stripe or ByteDance pre-IPO). Also, by timing secondaries, they might get in at depressed or highly discounted prices and ride some upside.
Another benefit: The new model often yields faster return of capital, which boosts IRR (a key metric for LPs). Traditional VC funds often take 8-10 years to return significant cash (when the big IPOs or acquisitions finally happen). But if a fund is doing secondaries or partial exits along the way, LPs get some money back in year 3, 4, 5 itself. For instance, if a fund sells a portion of a successful private company in a secondary sale in year 5, that could return, say, 1× of the fund early, and the rest comes later at IPO. This early distribution lifts the IRR (since IRR values money sooner). So even if the total MOIC is slightly lower, the IRR could be equal or higher compared to a wait-for-one-big-payday approach. The time value of money is an often overlooked aspect – a smoother return profile with earlier liquidity can be very attractive to investors. Tomasz Tunguz noted that with IPOs hard to come by recently, secondaries became “the primary path to liquidity” in venture, accounting for 71% of exit dollars in 2024. This is a structural shift – venture is no longer a long-term all-or-nothing game; it’s delivering cash flows more like PE does. And as he concludes, “secondaries will become a permanent fixture in venture… a structural evolution in how venture capital will function” – ultimately making it look more like private equity.
In summary, the power law still holds in VC, but the new model is about managing and leveraging it in a more controlled way. The biggest funds are essentially saying: we’ll still swing for the fences, but we’ll also hit a lot of doubles and triples, and we’ll try not to strike out as often. By introducing more predictable return streams and by actively engineering outcomes, they aim to deliver high returns more reliably (if slightly less astronomically). For LPs, this could mean somewhat lower variance in fund performance and potentially higher certainty of at least decent returns. For entrepreneurs, it means their investors are more committed to seeing the company succeed at any scale (not just waiting for a unicorn or bust). And for the VC firms themselves, it means building enduring franchises that can thrive even if the pure startup boom times cool off – they can pivot to buyouts or public investing as needed. It’s a more resilient model on paper. Time will tell if it truly outperforms, but it’s clear that venture capital is adopting a new toolbox to reshape the power law in its favor.
6. Secondaries and Liquidity: Why VCs Must Become Investment Bankers at Exit
One of the most practical shifts in venture strategy has been in how firms handle exits and liquidity. In the old days, a VC’s job largely ended once they invested – maybe they’d help the startup a bit operationally, but when it came to exit, they waited for an IPO managed by investment banks or an acquisition orchestrated by the company’s CEO and bankers. The new model flips this script: VCs are increasingly taking an active role in creating liquidity, essentially acting like investment bankers or secondary market dealers to get outcomes for their investments. This involves everything from secondary sales (buying/selling shares in private rounds) to structured liquidity programs for employees and early investors, and even coordinating acquisitions or SPAC mergers.
There are a few reasons this is happening. First, as noted, startups are staying private longer than ever – a trend that’s been building for a decade. The average tech company now IPOs many years later (often at revenue scale of $200M+ vs. $50M in the 1990s). That means VCs and startup employees are waiting longer for liquidity. Naturally, a large secondary market emerged to fill this gap. By 2024, the volume of secondary transactions in venture reached staggering heights – roughly $100B+ annually (estimated), up from just $25B in 2012. In fact, in 2024, secondary sales (private stock sales) accounted for 71% of all “exit” dollars for venture-backed companies, far eclipsing IPOs or M&A. Venture capital has, in effect, grown a quasi-public market within the private sphere.
Secondary share sales have exploded as a liquidity avenue for startups. As noted earlier, in 2024, an estimated 71% of venture exit value came via secondary transactions, dwarfing traditional IPOs. This reflects startups staying private longer and investors seeking liquidity through buy-sell deals of private stock. VCs are increasingly leveraging this secondary market to realize returns and manage their positions prior to IPOs.
For venture firms, this secondary boom is both an opportunity and a necessity. It’s an opportunity because they can proactively manage their holdings: if they think a company is overvalued or it’s prudent to de-risk, they might sell some shares pre-IPO. Conversely, if they see a chance to increase ownership in a winner, they can buy shares from others. It’s a necessity because LPs expect liquidity – a fund cannot wait 10+ years with zero cash out. By facilitating secondary exits, VCs can return some capital earlier.
To do this effectively, many top VCs are building in-house secondary market expertise. Lightspeed hiring Jack Fowler (ex-Goldman Sachs) in 2024 to lead its “Capital Markets” and liquidity strategy is a prime example. His background was literally running Goldman’s private stock trading desk, where he did block trades and company tender offers for late-stage tech shares. Now at Lightspeed, he’s tasked with crafting deals for Lightspeed’s portfolio – e.g. organizing a tender offer so employees at a unicorn can sell, or finding buyers for some of Lightspeed’s shares in a company to free up capital. Similarly, Andreessen Horowitz formed a dedicated “Capital Markets” team a few years ago to handle things like tender offers, SPACs, and debt for its companies. These are roles traditionally played by investment banks (Goldman, Morgan Stanley, etc.), but VCs are internalizing them to both better serve founders and to secure their own exits. As one Lightspeed executive commented, VCs now have to think about liquidity “beyond IPOs or M&A” – if you can’t pursue liquidity outside those, you’re too restricted. In the RIA era, they don’t want to be restricted.
Consider the structured liquidity programs some startups run: Instead of waiting for an IPO, a growth-stage startup might do a scheduled liquidity round every 18-24 months where employees can sell a portion of their vested shares to new investors at a set price. Who organizes and funds those? Increasingly, it is existing investors (VCs) themselves bringing in their LPs or other contacts to buy those shares. The VC firm may even use a separate fund or special vehicle for it. This kind of program keeps employees happy (they get some cash), keeps the cap table stable (no ad hoc sales to unknown parties), and allows the company to stay private longer with less pressure, all while keeping price control and shareholder composition within the hands of the founders. VCs acting like bankers here means they price the round in collaboration with founders, find the buyers, and handle the transaction mechanics, much like a bank would in a tender offer.
Another area is secondary funds and platforms. We are seeing dedicated pools of capital just for secondaries. Some large VCs have raised annex funds to buy secondary stakes in companies (either their own portfolio or others’). The prediction in industry circles is the rise of “dedicated secondaries platforms” connected to VCs like Industry Ventures, Manhattan Venture Partners and 137 Ventures. In other words, a VC firm might have its own marketplace or fund that continuously provides liquidity options to its ecosystem. This again mimics private equity, where firms often manage secondary funds or continuation vehicles. It’s telling that the venerable PE firm Blackstone launched a big secondary vehicle for VC-backed assets; VCs won’t let PE have all the fun – they are jumping in too.
When it comes to exits like IPO or M&A, VCs are also stepping up their involvement. In an IPO, traditionally VCs sit on the board and help pick bankers, but the new approach is more hands-on. For instance, a16z in some cases has been deeply involved in crafting direct listings or advising on SPAC mergers for its portfolio, effectively doing some tasks bankers do (like structuring PIPE deals). General Catalyst’s “wealth management arm” suggests they even help founders manage the post-IPO transition (something an investment bank’s private wealth division might do). The idea is to not hand off your golden goose entirely to Wall Street – stay involved through the exit to maximize value. This could mean negotiating better lockup terms, orchestrating an optimal sell-down of shares over time, or even influencing who buys in the IPO (since as an RIA, the VC could buy IPO shares too).
Acting like investment bankers also extends to facilitating acquisitions. VCs now sometimes proactively arrange a sale of a portfolio company. If they see a strategic fit, they might call up a larger tech company and pitch the acquisition, effectively brokering the deal. They might help the founder with valuation modeling, negotiation strategy, etc. In the past, a banker would do a lot of that (shopping the company around). Now VCs sometimes skip the banker, both to save fees and because they might have better access to the CEO of the acquiring company (courtesy of their network). This isn’t entirely new – VC board members have long helped with exit strategy – but the level of direct deal-making is higher now, especially with megafunds that have multiple investments and relationships to leverage.
All of this is to say, modern VCs cannot be passive about exits. If the last generation of venture investors were like patient farmers, the new generation are more like active traders and advisors. They sow the seeds but also prune, graft, and harvest with careful timing. The “liquidity engine” is now part of a VC firm’s core engine. Those that ignore secondaries or rely solely on public markets may find themselves stuck with illiquid positions while savvier rivals realize gains sooner. The data speaks volumes: the secondary market is no longer a side-show – it’s a $100B main stage. Lightspeed explicitly “shifted focus to secondary markets” as a strategic move to keep returns flowing. In turn, this gives them flexibility to hold companies longer – they can get partial liquidity and wait for a bigger outcome for the rest.
To sum up, venture firms must wear multiple hats at the exit stage: part investor, part broker, part banker. By doing so, they better align with founders (who want liquidity options), with LPs (who want cash returns sooner), and with the market realities (few IPOs, many secondaries). This is yet another aspect of venture morphing into a full-service financial business, far from the days of a handshake and waiting for an eventual IPO. It might feel against the grain for old-school VCs, but the successful ones are embracing it. In the next 3-5 years, expect more VC firms to tout their “capital markets” team in pitch decks, boasting how they can help a startup navigate everything from a Series A to a pre-IPO tender to, finally, ringing that bell on whatever exchange – be it New York or Dubai – when the time is right.
7. Implications for Smaller Funds: Adapting Without Imitating the Megafunds
Thus far we’ve focused on the industry giants – a16z, Sequoia, Lightspeed, and the like – who are driving the multi-asset, multi-stage shift. But what about smaller VC funds (say sub-$200M funds or newcomers)? How can they benefit from this paradigm shift without blindly copying the megafund playbook (which might be impossible or unwise at a smaller scale)? This is a crucial question, because the majority of venture firms are not billion-dollar behemoths.
The first piece of advice for smaller funds is: Don’t simply clone Andreessen Horowitz. As Ben Horowitz himself has implied, trying to be “A16Z 2.0” with a fraction of the resources will likely fail. The big firms have built massive organizations – specialized teams for marketing, talent, corporate development, data science, etc. – that a 5-10 person VC partnership cannot replicate overnight. Instead, smaller funds should “build your own blueprint”, focusing on your unique strengths and the specific needs of your founders. In other words, carve out a strategy that aligns with your scale and expertise. That might mean becoming extremely specialized (rather than a broad multi-asset) or adopting select elements of the new model that you can execute well.
One viable path for smaller VCs is to double down on domain or stage specialization – essentially, to be the “laser-focused niche VC” that can win in a particular arena. The new ecosystem likely shakes out with a barbell outcome: at one end, the mega-platforms (multi-stage, multi-asset firms); at the other end, focused specialists who are best-in-class in a certain sector or thesis. Indeed, Horowitz predicts the winners in the new era will be “mega-platforms like A16Z & Sequoia” and “laser-focused niche VCs”, while “everyone else risks irrelevance.” For a smaller fund, trying to fight head-to-head with the mega-platforms on their turf is tough – but being the absolute expert in a cutting-edge niche (say, quantum computing, or Africa fintech, or bioinformatics) can set you apart. Megafunds might even rely on you for that expertise (e.g. co-investing with you or following your lead in those deals). In that way, you benefit from the new landscape by becoming a valued specialist node in the network.
Another tactic is to leverage the shift without heavy infrastructure. For example, you don’t need an in-house secondary trading desk to benefit from the rise of secondaries; you can partner with secondary funds or use platforms (like Nasdaq Private Market, Forge, etc.) to get liquidity for your positions or to acquire secondary stakes in companies you know well. A smaller fund could opportunistically buy a small position in a late-stage company from a selling shareholder if it has conviction – effectively piggybacking on the trend of startups staying private longer. Similarly, while you might not run a credit fund, you could form relationships with venture debt providers to offer your portfolio companies financing options, thus keeping them from dilution (and indirectly boosting your equity returns). In other words, partnering smartly can allow a boutique VC to punch above its weight. If the new model says “act like an investment banker at exit,” a small VC can contract an actual banker or advisor to help with a key exit, rather than trying to staff that internally.
Smaller funds should also consider syndication and network models. As the big firms grow, they won’t capture every great deal, and they might overlook smaller opportunities that don’t fit their large check sizes. This leaves room for nimble funds to syndicate deals among themselves or with high-net-worth angels, etc. We’re seeing a rise of micro-fund networks that share diligence and co-invest – a way to create a pseudo “platform” without being one firm. These collaborations can help a small fund support a portfolio company through later stages without necessarily having a growth fund; the fund can bring in trusted co-investors for the Series B/C, maintaining influence and helping the founder get resources akin to what a bigger platform might offer.
On the flip side, smaller VCs can differentiate by staying true to venture’s roots – high-touch, founder-first support. Ironically, as mega-funds scale, some founders complain of feeling like small fish in a big pond. A boutique firm can emphasize bespoke attention: e.g. every portfolio company gets close mentor engagement from the partners, something a large firm with 300 investments might not manage. That personal touch can win deals against a larger fund (founders often choose an investor who truly understands their vision over a brand name that might sideline them). To quote Horowitz’s advice: “Serve founders, not spreadsheets.” Smaller funds can exemplify that by being the most responsive and founder-centric investors around. In a world of platforms, being human-scale can be a selling point.
In terms of strategy, smaller funds can adopt a “selective multi-asset” approach if it fits – for instance, maybe raise a small “opportunity fund” to participate in later rounds of your winners (many sub-$100M funds have done this to capture more upside). Or if you have a particular edge, create a sidecar for one strategy – e.g. a sidecar to invest in secondaries of your own portfolio when they become valuable (letting your LPs increase exposure to the winners). This is much easier than trying to invest in public stocks or random buyouts. Essentially, leverage your information advantage: as an early investor, you often know when a company is doing well but might need liquidity; you could arrange a secondary sale where some LPs buy out an early angel, giving everyone a win. Acting as a facilitator in such cases adds value to founders (they get loyal investors staying on the cap table) and LPs (access to a de-risked position). It’s being banker-like on a small scale. Another way to provide liquidity is to either build your own network of ultra high net worth individuals (like the Manhattan Venture Partners model) or partner with investment banks in order to structure periodic liquidity windows for your startups instead of listing them on secondary exchanges that never really work.
Finally, smaller funds should keep an eye on the exit environment and be flexible. If IPO markets are shifting regionally, a small fund investing in, say, Southeast Asia should cultivate connections with Asian exchanges or regional investment banks – don’t assume your U.S. network will handle an Indonesia IPO. If secondaries are becoming a big part of liquidity, be proactive: maybe take some chips off the table when your company’s valuation soars in a later private round (selling a small stake to return some capital early). This can boost your fund’s DPI (cash returned) and prove your model. In the power law world, small funds often die waiting for a big exit; in the new world, judiciously using secondary exits can lock in returns and manage risk.
In summary, smaller funds can benefit from the new model by aligning with it, not copying it outright. The venture playbook is being rewritten, but there are many ways to win. If you’re not a mega-platform, consider being the sharpest specialist or the most agile collaborator. The giants may wield huge pools of capital, but smaller VCs can exploit niches and maintain discipline. As one industry veteran put it: this is “wartime VC” – a time of change and competition – so each firm must figure out its strategy to survive and thrive. The good news is, founders still need partners of all sizes. Mega-funds might offer a broad platform, but not every founder wants or needs that. Many will prefer a focused, passionate investor who sticks by them. So don’t fear the megafund – find your lane and excel at it. If you do, you can even collaborate with the big guys (they might invite you into deals because of your expertise). In this evolving landscape, adaptability and clarity of vision are an upstart fund’s best weapons.
8. A Tale of Two $100M Funds: Traditional vs. New Model – Projected 10-Year Outcomes
To concretize the differences between the classic venture model and the new multi-asset model, let’s compare two hypothetical VC funds – both with only $100 million in committed capital, a 10-year fund life, and the goal of maximizing or even stabilizing returns for their LPs. One will follow the traditional model (early-stage focus, equity-only, concentrated bets). The other will follow the new multi-asset, multi-stage, multi-region model (diversified investments across stages, assets, and geos). We’ll sketch their strategies and potential outcomes in terms of MOIC (Multiple on Invested Capital) and IRR (Internal Rate of Return) over 10 years, under reasonable scenarios.
Traditional $100M VC Fund (Classic Model) – This fund sticks to the old playbook of early-stage equity investing.
Strategy & Portfolio: The fund makes ~25 investments of ~$4M each in seed or Series A rounds of startups (using the full $100M including reserves for follow-ons). It focuses on a specific region (say North America) and doesn’t invest in any public stocks or debt – pure venture equity. The portfolio is relatively unhedged and dependent on startup success.
Expectations: The power law rules here. The fund assumes perhaps 15 of the 25 startups will fail or produce <1× returns, a few will return 1–3×, and ideally 1–3 companies will become big winners (10×+ returns each). Essentially, the hope is for 1-2 unicorns to carry the fund. If none emerge, the fund will likely underperform.
Example Outcome Scenario: Let’s say out of 25 companies, 2 are hits: one exits at a 30× multiple on the fund’s investment, another at 10×. The rest include a couple of 2–3× middling exits and ~20 write-offs/low returns. If, for instance, the fund put $5M into the company that went 30×, that yields $150M. It put $5M into the one that went 10×, yielding $50M. Perhaps three others returned $2M on $2M each (1×, basically just capital back) and the rest zero. Total returned = roughly $200M on $100M invested. That’s a 2.0× gross MOIC. This would actually be a fairly mediocre outcome by top-tier standards (because only one big win). For a better scenario, assume one unicorn returned 50× on a $5M investment ($250M) and another 5× on a $5M ($25M), plus small contributions from others – then total = ~$300M on $100M, a 3.0× MOIC, which in VC is considered a very good result (tripling the fund). Many classic funds indeed target ~3× gross as a success.
Projected IRR: IRR depends on timing of exits. In the classic model, usually the big wins come late (years 8-10). If we assume the $300M in the better scenario comes mostly at the end of year 10, the IRR is around ~12% (since 3× over 10 years ≈ 11.6% annual compounded). If there were some interim exits (say the 5× exit happened at year 5 returning $25M), that would boost IRR a bit. So a 3× outcome might translate to ~15% IRR net to LPs. A 2× outcome over 10 years is about ~7% IRR. And a home-run fund, say 5×, would be ~17-20% IRR. For context, top-quartile VC funds historically delivered mid-to-high teens IRRs. So our 3× (12-15% IRR) scenario is in line with a solid venture fund outcome. The key point is the volatility: this traditional fund could also plausibly return only 1× or less (if no unicorn hits), which would be <0% IRR. Or it could return 5× if multiple hits – it’s a wide range. It’s boom or bust, with fund success riding largely on those 1-2 companies.
Risk Profile: High variance, skewed heavily by outliers. Many investments go to zero. The floor could be very low (worst-case, the fund loses a big chunk of capital if almost all bets fail). The ceiling is extremely high (in theory a fund could 10× if it found the next Google and put enough in). But on average, perhaps only 1 in 10 funds might exceed 3× returns; many might end around 1-2×. It’s a lottery-like payoff distribution, reflecting the power law.
Multi-Asset $100M VC Fund (New Model) – This fund employs a diversified, flexible mandate across stages and asset types, akin to what we described for the new RIA-driven approach.
Strategy & Portfolio: The fund allocates its $100M across multiple buckets:
Early-Stage Equity: ~$40–50M for classic venture bets (maybe 10-15 companies at $3-5M each). This is to capture upside of emerging startups (the traditional sweet spot).
Growth/Secondary Investments: ~$20–30M to invest in later-stage rounds or buy secondary shares of high-growth companies. For example, it might invest $10M in a Series D of a “soonicorn” startup and use $10M to purchase shares from an early investor in another late-stage company. Target returns here are maybe 2–3× on these deals, but with lower risk than seed.
Structured Debt/Yield: ~$10–15M in venture debt or other income-generating instruments. Perhaps the fund gives a $5M loan to a portfolio company with interest and warrants, and $5M into a high-yield venture credit fund or SPV. This might generate a steady, say, 1.5× return on that portion (e.g. 8-10% interest annually over several years, plus a bit of equity upside).
Acquisitions/Company-Building: ~$10–15M reserved for active value creation plays. For instance, the fund might acquire a small profitable SaaS company for $10M and then try to grow it (the kind of deal a PE firm might do), or use $5M to incubate two new startups in-house (hiring founding teams and providing seed capital). The goal here is to potentially create proprietary upside – maybe one of the incubated projects becomes a hit, or the acquired company can be sold later for 3× the purchase price.
Geographic spread: It might deploy, say, 70% in its home market and 30% in a couple of emerging markets via partnerships or co-investments, seeking the best deals globally.
The above is just one possible allocation – the key is diversity. The fund is actively managed and can rebalance. If one of the early bets is clearly succeeding, it might allocate more capital there (through follow-ons or buying secondaries from other investors). If the IPO market opens, it might put some money into pre-IPO converts or PIPEs. The RIA structure gives it maximal flexibility.
Expectations: The fund doesn’t rely solely on a unicorn, though it certainly tries to get one from its early bets. It also expects several moderate wins. The power law still applies to the early-stage portion, but the other portions aim for more consistent doubles. So the success scenario is more “multiple contributors” rather than one big home run.
Example Outcome Scenario: Out of, say, 12 early-stage companies, one becomes a unicorn (10× return on a $5M investment = $50M), two others have decent exits (say 3× on $5M = $15M each, total $30M), the rest mostly fail or small exits (maybe $5M total back from the remaining $30M invested). So early-stage portion returns ~$85M on $50M invested (1.7× for that bucket). Now, the growth/secondary portion: suppose it invested in 4 later-stage companies with $5M each. Perhaps two of those go public and the fund exits with 2× ($10M each), one does better (3× = $15M), one flops or is written down to 0.5× ($2.5M). Total from that bucket = $10 + $10 + $15 + $2.5 = $37.5M on $20M (a strong 1.9× for that bucket). The debt/yield portion of ~$10M might have steadily accrued interest and warrant gains to become, say, $15M (1.5×) by year 10. The active acquisition/incubation bucket of $15M – maybe one incubated startup fails (loss of $5M), but the other succeeds modestly (fund invests $5M and it’s now worth $20M, a 4×), and the $5M acquisition is grown and sold for $10M (2×). That yields $30M returned on $15M.
Adding up all buckets: Early ($85M) + Growth/secondary ($37.5M) + Debt ($15M) + Active plays ($30M) = $167.5M total returned on $100M. That’s a 1.67× MOIC. Not awe-inspiring, but importantly this is a fairly conservative/base-case scenario with only one unicorn and mostly small wins. The fund still makes money for LPs and likely beats public markets, though it might not be top-quartile among VCs with that multiple.
Let’s consider a more upside scenario for the new model fund: suppose two early investments really take off (one 10×, one 5×), yielding $50M + $25M; a couple others 2× ($10M total), rest fail, so early bucket returns $85M (as before). In growth bucket, one of the late-stage bets turns into a unicorn as well and because the fund got in late it returns 3× ($15M on $5M), others average 2×, so that bucket returns perhaps $45M on $20M (2.25×). The debt still $15M (steady). The active bucket – maybe the incubated startup is a surprise hit (it becomes a unicorn too, 10× on $5M = $50M), the acquisition still 2× ($10M). That yields $60M on $15M. Now total = $85 + $45 + $15 + $60 = $205M on $100M = 2.05× MOIC. Now we’re above 2×. If one of those hits were even bigger (say the early unicorn was 20× instead of 10×, adding another $50M), it could push the fund to ~2.5×. So the upside isn’t capped – it can still get a >2× fund if multiple things go right. But it’s less likely to see a 5× fund, because by design it didn’t purely concentrate on one moonshot; it diversified some capital into moderate return assets.Projected IRR: Interestingly, the IRR for the new model could be quite healthy even if the MOIC is a bit lower, because of earlier cash flows. In our base-case scenario (~1.67×), we’d assume some of that $167M came back earlier – e.g. the debt portion might pay interest annually or by year 5, some secondaries might be sold by year 6, etc. If, say, $50M was returned by year 5 and the rest by year 10, the IRR might end up ~10-12%. In the upside 2× scenario, with staggered liquidity, IRR could reach mid-teens. The multi-asset fund likely starts returning capital earlier (perhaps by year 3-4 via secondaries or dividends), improving IRR. So while a traditional fund aiming for 3× might also end around 12-15% IRR (if late exits), the new model fund targeting ~2× could potentially match that IRR with faster return timing. From an LP perspective, this lower risk, faster liquidity profile can be very attractive – it’s more “private equity-like” in that sense (PE funds often target ~2× with steady distributions).
Risk Profile: The new model fund has a higher floor and perhaps a somewhat lower ceiling. In a downside scenario where no unicorn emerges, the early bets might all fizzle (say only $20M back out of $50M), but the other assets could still produce maybe $40-50M (from debt interest, small exits, etc.), so worst-case it might return ~0.6-0.8× of capital – not good, but better than a traditional fund where if no winners, you might get <0.5×. More realistically, if nothing big hits, the fund could still perhaps break even or a bit above (1.1×–1.2×) due to yield and some salvage value. The traditional fund in that case would likely be <1×. Conversely, in a wildly good scenario, the traditional fund can massively outperform (imagine it invested in the company of the decade and got 100× – that fund could become 10× overall). The new model fund, even if it caught the company of the decade, might not concentrate enough in it to reach 10× fund – it might end up, say, 4× because a lot of capital was elsewhere. So it trades some upside for downside protection and consistency.
We can also compare some metrics over 10 years:
Total Value to Paid In (TVPI or MOIC): Traditional target maybe 3× (top quartile), New model target maybe 2×.
Distributed to Paid In (DPI) timeline: Traditional might be near 0 until year 8 then jump after big exits; New model might start distributing earlier (perhaps 0.3× by year 5, 1× by year 8, etc., reaching 1.5-2× by year 10).
IRR: Traditional could be anywhere from negative to 20%+ depending on outlier timing; New model likely in, say, 10-18% range for most outcomes, with fewer extremes.
To make this concrete:
Fund A (Traditional $100M) – after 10 years: returns $300M (3.0×). All of it comes from two IPOs in years 9 and 10. Net IRR ~13%. LPs are happy with the multiple, though they waited long (DPI was 0 until year 9).
Fund B (Multi-Asset $100M) – after 10 years: returns $200M (2.0×). It already returned $50M by year 5 (via secondaries and interest), another $50M by year 8 (via a private sale), and $100M in years 9-10 (via one IPO and one acquisition). Net IRR ~15%. LPs got capital back throughout and the outcome, while a lower multiple, came with less volatility.
Which fund is “better” financially can depend on the LP’s preferences and the risk environment. In bull markets, the traditional model might hit 5× and look stellar. In tougher markets, the new model might reliably deliver 2× when many pure VC funds barely break even. This is why many large LPs (like pension funds) actually like the idea of VC firms evolving to be multi-strategy – it makes their returns more predictable.
From the founder perspective, Fund B might have been more helpful through the journey (providing debt, secondaries, etc.), whereas Fund A perhaps just provided money and cheerleading until exit. On the other hand, Fund A’s singular focus could mean they really pushed for huge outcomes (swinging for the fences), which can also be good if you’re the next Amazon.
In conclusion, this comparative scenario illustrates the trade-offs:
The Classic $100M VC Fund is a high-beta, power-law-dependent vehicle. It could achieve very high multiples if it picks right, but also carries a substantial chance of low returns if luck doesn’t strike. It’s the traditional “go big or go home” approach.
The New $100M Multi-Asset VC Fund is a more balanced, multi-pronged vehicle. It likely yields a solid multiple in most cases, albeit rarely the eye-popping outlier. Its IRR can be competitive due to earlier liquidity, and its risk-adjusted performance (returns per unit of risk) is arguably higher.
As the venture landscape shifts, we may see LPs allocating some of their capital to each style: part to “legacy” high-risk/high-return VC funds, and part to these new hybrid funds that promise more “private equity-like” consistency with venture-like upside. In fact, some large LPs have encouraged VCs to evolve this way, essentially saying: “We love venture growth, but we also like PE stability – if you can give us a blend, we’re on board.” Hence the success of recent mega-raises by firms like a16z and General Catalyst for their multi-strategy funds.
To tie it back to our narrative: the power law is no longer the sole ruler of venture returns – it’s now power law plus portfolio construction. The new model presents an alternative for how a VC fund can be structured and what its outcome distribution can look like. The numbers above, while hypothetical, underscore a core point: the multi-asset approach can deliver similar IRRs and competitive MOICs over a decade, with potentially lower downside, compared to the traditional model. It’s not magic – it won’t make a bad investor good – but for capable firms it can be a superior model for long-term success.
9. Leveraging AI for Active Return Management
The evolution toward a multi-asset, multi-region, and dynamically managed venture capital model naturally extends into the realm of active portfolio management, powered by artificial intelligence (AI) and machine learning (ML). Just as hedge funds have long employed sophisticated data-driven strategies for continuous portfolio optimization, venture capital firms of all sizes can now harness AI to proactively manage returns rather than passively await exits.
AI-driven predictive analytics empower venture investors to anticipate both individual startup performance and broader macroeconomic shifts. Advanced algorithms can analyze extensive data sets—ranging from financial KPIs and user growth metrics to real-time market signals gleaned through natural language processing (NLP) from news, regulatory filings, and social media. Tools such as MosaicML and Vianai enable VCs to detect subtle shifts in market sentiment, competitor activity, or customer behavior, allowing them to take preemptive action—whether that's doubling down on promising companies or proactively addressing emerging risks.
AI-based portfolio rebalancing algorithms introduce dynamic capital allocation strategies to venture portfolios, traditionally viewed as static. Using Monte Carlo simulations and scenario analysis akin to hedge fund practices, these tools help venture firms optimize reserve allocations for follow-on rounds, secondary sales, or strategic exits. Platforms like Addepar and custom-built dashboards similar to BlackRock's Aladdin can continuously monitor startup metrics against market benchmarks, recommending where marginal investment dollars should flow to enhance overall portfolio returns.
The timing of exits significantly impacts fund performance, and AI models can systematically enhance these decisions. Predictive tools, such as PitchBook’s VC Exit Predictor, assess optimal timing for IPOs, acquisitions, or secondary sales based on historical data, current market conditions, and startup growth trajectories. Moreover, as the venture secondary market grows, AI-powered systems provide continuous valuation insights from real-time secondary pricing data, enabling VCs to proactively manage liquidity and strategically realize gains.
Contrary to the perception that sophisticated AI requires significant infrastructure, today’s accessible AI tools mean even small and mid-sized VC firms can deploy robust analytical capabilities. With modest investments in tech talent—such as a data engineer or a data scientist—firms can utilize off-the-shelf platforms (e.g., QuantConnect, Vertex AI) and APIs to integrate predictive analytics, NLP-driven market intelligence, and dynamic portfolio management. This approach democratizes data-driven decision-making, enabling smaller funds to compete effectively with larger peers.
Critical to effective AI-driven portfolio management is the continuous integration of dynamic data inputs, including real-time startup KPIs, industry valuation trends, and exit market conditions. Integrating these data streams provides VCs with a holistic, constantly updated view of their portfolio, enabling informed, timely actions. For instance, rapid detection of declining user engagement or emerging valuation trends can prompt strategic pivots or reallocation of resources before broader market shifts become apparent.
By adopting these AI-driven practices, venture firms enhance their ability to actively manage returns, mitigate risks, and optimize investment outcomes—transforming venture capital from a traditionally passive, intuition-based endeavor into a dynamic, data-augmented asset class.
10. Conclusion: Navigating the New Venture Landscape
Venture capital is in the midst of a profound transformation. The simple, classic model that defined the industry for the past half-century is giving way to a more complex, multi-dimensional model – one that looks a lot like venture capital, private equity, hedge fund, and startup studio all rolled into one. This evolution is driven by necessity (startups staying private longer, more capital chasing deals) and by opportunity (AI, globalization, and massive wealth pools reshaping where value is created).
For VCs, especially those at the top, adapt or fade away seems to be the mantra. Firms like Sequoia, Andreessen, Lightspeed, Thrive, and General Catalyst have already made bold moves to redefine themselves, breaking the mold of what a “VC firm” can do. The results will play out in the coming years, but one thing is clear: the venture firms embracing multi-asset, multi-stage, multi-region strategies are positioning themselves to dominate the next decade of tech. They are building platforms designed to capture and create value at every turn – from inception to IPO, from Silicon Valley to South Asia.
What does this mean for the industry’s stakeholders?
For LPs: You’ll have new choices of fund products that may offer more stable returns, albeit perhaps slightly lower peaks. Diligence will need to assess not just a firm’s early-stage acumen but its ability to operate like an investment house. The good news is more pathways to liquidity and possibly a smoother ride.
For Founders: Your investors might look and act differently. You might find your VC leading your Series A and also helping arrange your pre-IPO secondary sale, or offering you a credit line so you don’t have to do a down round. Loyalty might increase – these new VCs are in it for a full lifecycle partnership, which can be great if you want patient, flexible capital. On the flip side, you’ll want to ensure any VC with a broad mandate is truly adding value and not stretching themselves too thin across activities.
For Venture Firms (especially small/mid ones): The bar for value-add is rising. You may not need to become an RIA tomorrow, but you should evaluate where you can differentiate. Maybe it’s doubling down on a niche, or collaborating with bigger firms, or carefully expanding your own scope in a manageable way. The middle tier of VC may face consolidation – those neither big nor specialized could struggle. So, chart your path: join forces, stay boutique and brilliant, or invest in growing your platform where it makes sense.
Is this the end of venture capital as we knew it? Some proclaim “Venture Capital is dead. Long live Private Equity,” implying VC is morphing into a PE-like beast. In reality, venture capital is not dying – it’s evolving. The industry is shedding some old limitations and integrating new capabilities. It’s almost a coming-of-age: VC is no longer the quirky cousin of finance; it’s becoming a mainstream asset class with all the sophistication (and challenges) that entails. The best VC firms will still have entrepreneurship at heart – taking risky bets on innovation – but they’ll complement that with financial savvy, strategic breadth, and global vision. They’ll still chase the power law, but they’ll also bend it to their favor when they can.
In this contrarian exploration, we’ve seen that the future of venture could involve investing in anything, anywhere, anytime. It’s a thrilling and perhaps daunting prospect. Venture capitalists will need to be as nimble and innovative as the startups they back. They’ll navigate IPO markets from New York to Riyadh, execute deals ranging from SAFEs to LBOs, and wear multiple hats as coach, financier, and deal-maker. Those that succeed will have unprecedented influence on the tech ecosystem – not just funding companies, but building and shaping them and even the markets they play in.
For those of us observing or participating in this industry, one thing is certain: the game is changing. The narrative of “spray and pray” is being supplanted by one of “concentrate and compound”. Venture capital is growing up and branching out. As with any change, there will be winners and losers, hype and reality. Some experiments will fail. But the direction is set – toward a more multi-faceted venture model.
In the end, the core mission remains: to generate outsized returns by enabling the next generation of world-changing companies. The means to that end, however, are broadening. The evolving VC firms believe that by arming themselves with a richer toolkit (be it AI to inform investments, capital market ops, global reach, or structural flexibility), they can better fulfill that mission.
The message to venture capitalists reading this (and to LPs and founders) is: embrace the change thoughtfully. Question assumptions of the old model, but also implement new strategies with first-principles thinking – not just because others are doing it. Use the power law, but don’t be enslaved by it. Provide more to founders, but ensure it truly helps. For smaller funds, find your edge in this new world rather than chasing giants. For big funds, innovate but stay true to adding value, not just empire-building.
As the dust settles over the next decade, we’ll likely see a handful of venture “platforms” standing tall, a thriving tier of specialized funds, and a more dynamic global market for venture-backed innovation. The journey there will be fascinating and will rewrite many rules. The evolving nature of venture capital indeed feels like the “rise of something entirely new” – a model still being defined. It promises a future where venture firms are as entrepreneurial as the startups they invest in, creating a virtuous cycle of innovation in both technology and finance.
In venture capital, as in startups, evolve or perish is apt. The model is evolving – and if you’ve read this far, hopefully you have a clearer view of where it’s headed and how to navigate it. The contrarian bet is that this new model, albeit complex, will ultimately produce better outcomes on a risk-adjusted basis, and perhaps even drive the next wave of growth in the tech sector by providing it more robust support. Venture capital is not dead; it’s reinventing itself for a new era.
Investor, know thyself – and thy market. The narrative of venture is being rewritten; make sure you’re not reading from an outdated script. Here’s to the new age of venture capital, where fortune will favor not only the bold, but the adaptable.
By: Ahmad Takatkah
May 13, 2025
Sources:
Erdem Kilic, “Is Venture Capital Dying or Evolving?” – Analysis of VC firms shifting to RIA status and multi-asset strategieslinkedin.comlinkedin.comlinkedin.com.
New VC Model Posts (TheIcahnist), aggregated insights on classic VC vs new RIA-driven approach.
Arab News, “How Saudi entrepreneurs are navigating the shift to public markets” – on emerging IPO opportunities in MENAarabnews.comarabnews.com.
Wamda News, “Jahez lists on Nomu with market cap of $2.4B” – example of a Saudi startup IPO on local exchangewamda.com.
Visible.vc, “What Is a Good MOIC?” – context that a 3× MOIC is considered a strong venture fund performancevisible.vc.
Rundit Blog, “Understanding the VC Power Law” – explanation of how a small percentage of investments drive most returnsrundit.comrundit.com.
Tomasz Tunguz, “The Great Liquidity Shift” (2025) – data on secondaries comprising 71% of venture exit value in 2024 and the structural role of secondary marketstomtunguz.comtomtunguz.com.
Lightspeed Venture Partners – team profile of Jack Fowler, describing his role in secondary market and liquidity strategylsvp.com.
TheIcahnist via LinkedIn, “Venture Capital is dead. Long live Private Equity” – notes on Lightspeed, a16z, Thrive becoming RIAs and new playbook (launch/acquire, roll-ups, secondaries).
Ben Horowitz commentary (summarized in New VC Model Posts) – on evolving the VC firm model: specialization, platform-building, and advice to VCs (“don’t clone A16Z”)file-tnjadjm9awejqnkxvujox3file-tnjadjm9awejqnkxvujox3.