Super Return has long been a bellwether for the state of private markets, but last week’s U.S. focused fundraising event in Miami marked a cautious shift.
The exuberance of the past few years, characterized by high valuations, rapid deal velocity, and a focus on momentum-driven has given way to a more measured approach. Limited partners are prioritizing simple benchmarks like Distributions to Paid-In (DPI)—realized returns over paper gains.
In this piece we explore five reflections from the conference, and the important impacts they will have to the VC and fintech ecosystem.
The Liquidity Crunch: Why DPI Matters More Than Ever
After the 2021 tech crash, limited partners faced a denominator effect. Their public market positions were meaningfully below their private allocations because of stock price declines. They were thus unable to further allocate to alternatives since their target portfolio was out of whack.
2021 created a reversal. As Spencer Punter of DCVC explained during a panel, while public valuations have come back, private investments have not given off sufficient DPI creating a different denominator issue – LPs simply did not have sufficient capital to invest in alternatives.
The appropriate portfolio “rebalancing” strategy is not necessarily clear. Some argued that drastic efforts to reduce overallocation in private investments by significantly reducing or stopping new commitments, could potentially be more damaging than a continued overallocation. As investors continue to wrestle with this effect, one thing is certain: liquidity is now a top priority.
This is why so many LPs and investors are focused on exits. There may be some good news here. On the fintech front, Klarna has filed for its IPO, which according to some estimation could be worth at least $15 billion. This would be an initial recovery from its nadir when the company faced ~85% value plunge in 2022. Others are on their way for 2025 potentially.
Secondaries And Alternative DPI solutions
One of the hottest topics in the event was the rise of secondary sales to create a path to liquidity. 2024 experienced a record amount of private equity sales in the secondary market, representing a ~45% increase than the previous year. Traditionally, venture capitalists have looked to M&A or IPOs as the principal routes to exit. But as holding periods have increased and IPO rates have decreased, secondary firms have risen to the opportunity.
These can take many forms, including internal (continuation funds), or secondary firms for LPs (buying a full stake) or GPs (to sell particular positions).
The important thing to remember however, is that the exit may not be the end of the road. Reflecting on IPOs, Punter said: “Being public doesn’t mean it is the end of the game—it’s part of the journey.” Many VCs are holding their positions in public companies, so this may not be the DPI point depending on the firm’s policy.
Diligence Over FOMO: Learning from Past Mistakes
One change since 2021 I’m personally most excited about is the resurgence of diligence in venture and capital allocation more broadly.
Lamenting the FOMO era (Fear Of Missing Out), which yielded investments into firms like FTX, Jeff Ransdell of Fuel VC explained the importance of real diligence. Within his firm, he embeds technologists in diligence teams.
Yet, incentives are not always aligned. In 2024, 30 VC firms raised ~75% of all US venture capital fundraising. This concentration creates market dislocations, with larger firms looking for companies to place large checks.
In my own view, and through our work at Fluent Ventures, we’ve noticed that deal processes have slowed, giving the time to do real work, and build genuine relationships with founders before investing.
AI’s Impact: Market Concentration vs. Capital Efficiency
Clearly one of the hottest topics at the event was the rise of AI.
This will manifest itself across multiple areas of the financial services capital formation ecosystem. In VC, new models are emerging. Across growth equity and private equity, AI is being used to lower costs and increase margins. All managers I met were exploring this as a core opportunity across multiple use cases.
One rising trend are camel seed-strappers. Startups leveraging AI can get to first revenue much faster and with less capital. They can test and scale their offering. Some are able to do this while only raising a single round of capital.
This is creating a paradox. Large VC firms are looking to deploy more capital. Yet, seed strappers need (and want less). This creates a risk for overfunding, artificial valuations, and herd mentality investments, which seems contradictory to recent learnings the industry experienced.
Re-Emerging Enthusiasm for Private Markets
Despite liquidity concerns, LP enthusiasm for private markets is rebounding. New sectors have clearly benefited, like the rise of private credit, which at the start of 2024 expanded to 1.5 trillion (from 1 in 2020).
Many panels highlighted the core advantages to alternative assets. Beyond raw performance, they can be uncorrelated (and one thing some fintech startups have historically looked to offer across multiple product categories).
Differentiated global strategies are becoming more attractive to LPs seeking non-traditional exposure.
Other areas that might seem on the downstream are not gone yet. For example ESG, which despite facing pressure, was still positioned as a core metric. As Michelle Davidson of Aksia explained in one session: “ESG is part of the due diligence process. Same as every other risk. It is client-specific.”
Closing Thoughts: The Return of Measured Optimism
Overall, what we’re seeing is a return to optimism, but in a more measured way. FOMO is dead. Diligence is back. Blitzscaling in startups has been replaced by Camels. Seedstrapping is a new model. This is influencing how LPs are thinking.
Yet the story is not yet fully written. Reflecting on a panel title referencing “the rise of optimism”, Mark Hoeing of CF Private Equity said “The headline was probably written six months ago. Things have changed quite a bit.” Shakiness in the public markets and uncertainty in new regulation, mean the field remains quite dynamic, and will certainly continue to evolve.
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