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How LP Deployment to Venture Will Change in 2025 & Are Endowment Funds in Trouble?

20VC with Harry StebbingsRory O'Driscoll, Jason Lemkin, Harry Stebbings
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  • OpenAI is projected to prioritize ownership in the coding space, with discussions regarding a potential acquisition of Windsurf remaining uncertain and a purchase of Cursor viewed as feasible but not guaranteed.
  • Market participants anticipate a period of explosive but unpredictable market growth where early adopters are abundant, yet the consensus indicates that 90% of enterprise sales potential remains unrealized with current usage.
  • Significant capital constraints and shifting LP appetites are expected to impact liquidity planning for institutions like Ivy League endowments through 2025 and 2026, driven by public market volatility, potential regulatory fines, and a preference for liquid assets like bonds and index funds over illiquid venture positions.
  • Venture funding dynamics show a compression in seed round dilution from 15% to 10%, increased pressure from multi-stage funds pushing out seed firms, and a trend where doubling fund sizes requires double the outcomes to offset the lower 2-3% management fees relative to larger capital bases.
  • Founders are noted for raising capital at astronomical valuations up to $10 billion with perceived low risk, while VCs face the challenge of deciding whether to pursue high-risk, high-reward opportunities or adhere to valuation discipline.
  • Investment strategies are increasingly bifurcated between consumer and infrastructure markets which may favor winner-take-all outcomes, versus the fragmented enterprise app market characterized by oligopolies and nuanced sub-markets.
  • Roll-up plays in AI are viewed with skepticism due to the likelihood of low multiple returns from financial engineering rather than organic customer adoption, though vertical SaaS categories with deep expertise may remain under-invested.
  • The competitive landscape for seed and Series A deals is expected to tighten as multi-stage funds expand, creating a "craps table" environment with wild trajectories once product-market fit is secured, making it difficult to identify the eventual number one competitor.
  • Institutional fundraising is anticipated to be difficult in the near term due to reduced LP appetite for new managers and existing re-ups, with many endowments potentially selling assets to manage outflows.
  • Investment teams face internal pressure to retain top talent during a "hot hand" phase, with increased spinouts expected as junior professionals weigh the expected value of staying at large firms against the potential of launching new funds.
  • Emerging tools utilizing AI to screen deal pipelines based on metrics like growth rates and tenure are expected to assist in identifying outlier opportunities, with a strategic focus on securing a limited number of high-conviction 5x to 10x investments over a decade.