Venture capital's existential issue:
- One end of the venture market is small, focused on discovery, and relies on exits.
- The other end is large, focused on winners, and relies on generating markups at scale.
Growth of the latter has come at the expense of the former, by systematically delaying or destroying liquidity.
This imbalance is cannibalising venture capital's ability to interface with new ideas and talent.
It's why the largest firms are all concentrated in the same themes (often the same companies), and are even recycling the same founders.
The narrowing market only increases the velocity of capital, masking the problem. New seed rounds are falling, but Instinct can still raise a $1B on $10B.
The solution is to look at vehicles that can allocate capital from large LPs to both ends of the market, fuelling the growth of small and emerging managers.
This points to data on the marginal outperformance of fund of funds, and evidence that (unlike venture capital) they offer a truly scalable product — providing a better solution for large LPs.
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