The first thing I want to dive right into is your perspective. We're seeing a lot in terms of the liquidity crunch. There aren't a lot of acquisitions, there aren't a lot of IPOs, and we're seeing record-low fundraising for a lot of emerging managers. What's the TLDR on what you're seeing in the environment right now?

The TLDR is, it's tough out there. I'm just going to go with "it's tough," because there are folks who can raise. And so everyone sees that in the headlines. So it's not that no one can. But to the conversation you and I were having, I think we're running the numbers. It looks like Q1 of 2025 is a new low for venture fundraising for quite a while. I thought it was last year. Looks like we're troughing this year. I'm hopeful that this will come back out, but coming back out will really depend on more liquidity coming back into the system.

I can extrapolate more on why the LPs are feeling pressure, but it's not just the lack of liquidity. We are in year four now of capital calls surpassing liquidity coming back in, so it's a net-negative cash flow situation for, gross generalization, most LPs. But you also have a lot of external factors going on, with tax rate increases coming and things like that, which have nothing to do with the founder or with the GP. It's still going to become an issue for LPs that haven't paid taxes in the past, which in this case is endowments and foundations.

It sounds like, from the conversation we were having previously, Q2 is not going to end up being any better. It's a continuation of the trough. The takeaway is that there is pain, and the pain is not necessarily over in the short term. Is that right?

I don't think so. I'm such an optimist, I want to say Q2 will be better, but I don't see any numbers that indicate that. What I suspect we'll see, and the numbers are obviously still forming, is that the major names that can raise will raise. And you're seeing a real dearth of not just emerging managers that can close, because there are some, but the middle folks, right? People that have been out there on fund four, five, and six and have money in the ground, but still it's too soon. And the exit markets have been quiet, which is the politest word I can think of. Even if their funds are 2018, 2019, they're not seeing anything coming back, really. There's bits. We're seeing a little bit more activity in May. Let's cross our fingers June is productive for everyone.

I'm curious how LPs are thinking about venture as an asset class. You frequently hear that venture is changing dramatically, prices have never been higher, and there are all these obstacles and struggles with liquidity. Are LPs changing their perspective on venture as an asset class writ large? Are they getting better at segmenting unknown emerging managers from known emerging managers from established platforms? How are LPs thinking about the broader ecosystem?

I think it's very clear that innovation occurs in the venture technology world, and you can see the number of highly performing large public companies that were venture-backed historically. So if you're just a historian, you'd say yes, obviously venture is a relevant asset class, because it invests in innovation. Innovation is critical.

The question you're then coming to is, are the returns today going to be what the returns were in the past? That is a conversation that is happening everywhere, and I don't know if there's an answer quite yet, because it gets to this: is this a four-year trough, which is what we saw after the dot-com bust, and then we came out and there was a mega bull run for a long time? Or have we structurally changed things, with the size of these funds and the dollars going to companies that stay private for an extended period of time, such that you might get your money back, but you're going to get your money back in 20 years? And then at what level do you need to make up for that illiquidity? And who are the LPs that that works for, versus the LPs that might be buying into something they want a different kind of profile on? I think it's happening in real time.

You mentioned that private companies are staying private longer, which has been a discussion topic for a long time. Companies like Facebook and SpaceX historically built really robust tender programs to be able to stay private much longer. Now we're seeing that go from a select few companies to volumes of secondary transactions at levels we haven't seen before. A number of folks have pointed to that as an alleviation: if you're one of the earlier funds that invested in these very large companies that have continued to raise more and more, you can get liquidity in the secondary markets, and that can be a salve for the illiquidity LPs are feeling. Do you think that's here to stay, a mechanism we can keep benefiting from? Or is it a temporary solution to a systemic change in the ecosystem?

Secondaries have been around for a long time, so they're not new. What is new is the amount of discussion they're getting, and I am happy about that. It's been a bit taboo, a bit of a dirty word: "Oh, so-and-so is selling. This must be terrible." And the reality of it is, no, there are all sorts of programmatic reasons why large LPs sell positions from historical funds. It's not necessarily negative at all. It's just part of the business cycle. So I like the fact that this is getting de-tabooed. That's a positive. I think understanding the exit method is something most venture capitalists as a profession don't spend enough time thinking about. But LPs do. This doesn't mean sell your winners too early. There's all sorts of nuance. I just think it's healthy to be aware of the whole 360.

I would say, though, and I think the most recent PitchBook report, my memory is accurate, said the market is $60 billion, which is not small. It is definitely larger. If you're in a small fund and you can sell your whatever, pick your favorite top company, that can access a portion of that $60 billion, and you can 3x your fund, it is a good day. But if you need your company to be $10 billion to return your fund, it doesn't make sense that you're going to be that percentage of that secondary market. So there's still a natural cap on it, and it's certainly less liquid than the trillions of dollars in the public markets. So it's growing, and I think it could get bigger. We see a lot of secondary vehicles being raised. So maybe there is a day where it could be the way to return a billion-dollar fund multiple times. It's just not quite there yet.

Anecdotally, I'm seeing a lot of funds get started. People are spinning out of existing platforms, and founders are raising vehicles. But when you look at the data, there's been a massive drop-off in new funds being formed. Is the math making it so difficult that people are limited in their desire to even start a fund? Or in your experience, are a lot of people going out to raise a fund and failing because of the brick wall of uncertainty they're getting from LPs?

Yes, because you'll notice the numbers that get reported are the closed funds. There are probably thousands more that are fundraising. So yes, the numbers look small, because the number of people that can close their fund is smaller.

And on the profile of folks now, because you're seeing a conservatism among the LPs: again, I don't have the numbers for Q2, but in Q1 you saw a lot of spin-outs. What that gives an LP comfort in is that it's someone who understands the business. They've been trained, relatively speaking, on other platforms. They understand how a cap table works. Theoretically, they understand a term sheet. They understand warrants. They understand how the follow-on capital works. I'm mentioning all these parts because a lot of new managers do not know these things. And this is a somewhat impolite way of saying it, but the expectation is they're going to learn on the LP's dime. A lot of LPs will tell you, "My money isn't there for that." That's not the LP's risk appetite. They want people to learn that somewhere else and come back and invest this money differently. So that's why the spin-outs get favored.

The spin-out people also might know LPs. What people don't think about all the time when they're starting a fund is, do I know the people I'm going to fundraise from? If it's Kyle at Kyle's Fund, and you came from somewhere else and you knew your 10 LPs from your last fund, you have an advantage. They know you, you know them. You have warm calls to make versus a standing start.

And just to wrap up this: during 2019, 2018, 2020, it felt so much easier, because there are so many wealthy individuals in the tech industry that were backing funds, or trying to pull operators out of companies where they wanted to mine the network. It felt much simpler because, mathematically, you just saw the number of funds closed. There were a lot more. People were risk-on. And now that we're risk-off, I don't know if everyone's realized that some of the actual hard techniques of fundraising need to come into bear.

I'm curious about your read on LPs. Are folks souring to some extent on venture more broadly, because the illiquidity has been so painful? Or are they dramatically reducing risk and focusing intently on larger platforms? You've seen stories of even firms that have been around for a while not being able to raise as much as they would have liked. Is your read that the majority of LPs are souring on the category broadly, or more so on the riskier bets, and doubling down on established platforms?

I have yet to see an institutional LP that has a history of investing in venture, saying, "I'm going to do a venture sleeve," say, "No, no, we're done now." I do think people are continuing to refine their judgment or their discretion on where they want their dollars. And maybe I do want a big platform. The promise of the big platform is you're guaranteed to get some of these big names, right? "We're raising for this purpose, to not miss any of these great companies." Whereas a smaller, earlier fund isn't necessarily going to capture them. They might have other reasons that are wonderful and productive, but they don't need the next trillion-dollar company to return their fund. So I think people are just really choosing their bets carefully now, depending on what the LP's investment profile is and what they're looking for.

I keep listening for exactly the question that you're asking, which is, has someone decided venture as a sub-asset class when private equity is not interesting? And I'm sure there's some that are, but they're not ones who have had a history of doing venture, right? And then you also know your managers.

I also think what people don't always understand is that the LP team has to filter these thousands of opportunities. If they're an LP that also does private equity, real estate, public debt, and public equities, that's a lot to process. So to then go out and meet with hundreds of venture funds to find one that you want is a big ask, and a lot of times LPs stick with who they know. If I'm Beezer and I'm fundraising, I've got to convince your LP that Kyle's not going to be productive, even though he's known you for years, and take a risk on me. You have to really sell against an existing world, which is just a really different sell.

There's a fundamental bifurcation in venture. There are folks who are acknowledging that they want a very deliberate fund size, and then you have the much larger platforms managing $5 billion-plus individual funds that they're raising every two, three, or four years. Those fundamentally need different outcomes to justify their existence. Bringing this down to a founder's perspective, when I'm trying to choose which investors to work with, one of the things we think about a lot is that you're picking up the stick of expectations for the firm you raise from. If you raise from a larger firm, the odds are that they're going to be highly incentivized to encourage you to chase the absolute largest outcome, whereas a smaller fund can be okay with what sounds crazy to call a middling or subpar outcome, maybe a $1 or $2 billion outcome instead of a $10 or $20 billion outcome. When you pare that down into the math, do you agree with that perspective?

I agree that people should be doing the math, because the LPs are doing the math. The same math that you're doing, we're doing. And many of our GPs will come back and say, "Hey, we're looking at this." What also helps, and this is where I advocate that people should ask LPs this question, is to say, "Well, how many $10 billion companies do you actually see in a set of something?" Because what people don't have the data sets around is the actual likelihood. If I need 10 $10 billion companies in one fund to return the fund, mathematically, I think my odds are bad, man. It's a tall order. It might be fine if I'm in a $20 billion fund, because I get to invest in everything. But if I'm in a $100 million fund, my ownership is so low, and I've paid these really high valuations, it's tough.

We actually have a portfolio construction model that we'll let people play with. It's a lot. I'm not lost on me. This is asking the GPs to do a lot, but they should know the math of their business, because if the LPs know the math and they don't know the math, that makes it hard to fundraise. And the folks that you named, the Benchmarks and Union Squares, they know their math. When a newer manager comes out and doesn't know their math, if they're in some wildly productive network and they're just the best investor ever, the math will work out for them, because they'll hit the next ginormous decacorn, whatever we call the next zillion-dollar company. But for everyone else, it just resonates better if you can talk the talk.