LPs are the real decision-makers on capital allocation and almost all of them are pension funds. Pension funds have almost zero chance of staying solvent unless they can drive above market returns.
Right now that can be done on interest rates alone.
Zero interest rates meant they had to deploy capital, so many VCs were able to raise.
But most VCs will never get a chance to raise another fund.
Like you pointed out: don’t be fooled by all the info out there about how VCs’ think. Watch what they do.
Like everyone, when it’s not clear how to deliver an expected outcome they flock to “what everyone else is doing.”
Today that’s generative AI. It’s a lottery, a few VCs will get lucky.
But the volume of future capital available to raise has collapsed & there’s no indication it will recover.
Worse, incumbents have captured almost all the advantage of AI’s current capabilities.
So VCs are going to return to funding startups in their social network, for the “hot topic” they must have an allocation in to stay relevant, and put all their eggs in the safest (perceived) basket.
Most will be out of a job as soon when the money runs out.
is this true? afaik they hand over their money and trust the partners to allocate
> and almost all of them are pension funds.
pension funds can go to taxpayers for a bailout and CalPERs has done so before
this is why it is not a great idea for pension funds to play in venture capital...it isn't fair for taxpayers who have to pay out the losses to keep the pensions running
The top 100 pension funds have $17T (trillion) in assets: https://www.visualcapitalist.com/worlds-100-biggest-pension-....
The total money supply is estimated at $48T: https://www.gobankingrates.com/money/economy/how-much-money-...
While in theory LPs are “hands off,” in reality you don’t get to raise another fund if you aren’t giving them annual updates that they like. It’s similar to the level of influence VCs have on startups - much more impactful than you’d expect till you are sitting on a board as a founder & realizing you are constantly having to lobby for the direction you are taking the company in.
There’s not a taxpayer-base on earth that can bailout all of their pensions. That’s some clever financial engineering & debt transfer to money printing, but as we are all now aware those global limits have been hit.
Everyone answers to someone.