For the last few years, terms have become less favorable to LPs in the best VC funds. Venture has had a good run, and the best funds have outperformed other asset classes on paper, and because of that, many LPs have wanted to increase their exposure to venture. And there are only so make A-tier VC funds to invest in.
As a result, for the best firms, terms became even more favorable over ’14-early ’16. Funds got closed faster, with more demand. More funds added premium carry. The all-in economics also became implicitly even more favorable when the best funds raised newer funds faster. The faster you raise the next fund, the more you can make both in fees, and if you invest well, carry. Also more opportunity funds, stapled funds, int’l funds, etc. were created which are even favorable to overall GP economics when done right.
The classic “2/20” economics no longer applied to most of the best funds, not even close.
Will things swing back now, with a market downturn?
Maybe.
But / and does it even matter? The very best funds perform so much better than the rest. The GPs there should share in more of the gains. Having the same economics apply to second-tier funds as proven, top-tier funds doesn’t make a lot of sense to me. The Ubers of the VC world shouldn’t have to take as much dilution as the Other Firms 🙂
