TLDR: The freeze on growth funds in the venture capital industry is beginning to thaw, creating an opportunity for LPs to invest under more favorable terms. LPs who have little or no exposure to growth funds should take advantage of this opening in the market.
LPs have had limited access to growth funds in recent years, with many funds closing quickly and oversubscribed. This has resulted in higher valuations and less favorable terms for investors. However, the market is starting to shift as the demand for growth capital decreases, allowing LPs to negotiate better terms.
According to the article, there are several key factors contributing to the thawing of the freeze on growth funds:
- The increase in competition among growth funds has slowed down, leading to fewer oversubscribed funds.
- LPs are becoming more cautious and selective in their investments, which has decreased demand for growth capital.
- The exit environment for growth companies has become more challenging, reducing returns for investors.
LPs who are considering investing in growth funds should carefully evaluate the market conditions and the specific terms offered by each fund. The article suggests that LPs may have more negotiating power in terms of management fees, carry structures, and liquidation preferences.
In addition to the potential for better terms, LPs should also assess the performance and track record of the growth funds they are considering. The article advises LPs to analyze both the fund manager’s previous investments and their ability to navigate challenging exit environments.
The thawing of the freeze on growth funds presents an opportunity for LPs to diversify their portfolios and gain exposure to high-growth companies. However, LPs should approach these investments with caution and conduct thorough due diligence to ensure they are making sound investment decisions.
