Venture capital's money model is shifting
Add Axios as your preferred source to
see more of our stories on Google.

Illustration: Shoshana Gordon/Axios
The Yale Model, which has undergirded modern venture capital, may be dying.
Catch up quick: Ivy League endowments, and many of their charitable foundation peers, for decades have overallocated to venture capital.
- It's been a mutually beneficial relationship.
- Endowments and foundations have generated outsized returns to fund their missions, while venture has gotten to feel good about the money it's managing.
The latest: Venture distribution cycles have elongated to the point that LPs now risk a decade of negative cash-flow on many of their VC relationships.
- That's not sustainable for institutions with large spend requirements, such as a university endowment. At least not if it's overallocated to venture.
Zoom in: We've spent a lot of time discussing LP frustrations with the lack of liquidity, particularly tied to the dearth of IPOs, and how it threatens the industry's foundational alignment of interests.
- A subplot is that it's also exposed a fissure among LPs.
- On one hand you have these traditional groups, many of whom subscribed to some version of the Yale Model. Limited capital inflows, required outflows, and relatively small scale.
- On the other are sovereign wealth funds and U.S. public pensions. High capital inflows and such large scale that they can make the same dollar allocations to VC funds without the same concentration risk. In short, they can afford to play a longer game.
What to watch: Annual reports from endowments and foundations, as most of their fiscal years end Sunday.
What they're saying: "It's now such a brute force capital game that you're seeing a shift in the composition of LP bases," one longtime LP tells me. "Many large VC funds have started turning to the sorts of investors they wouldn't have even met with 10 years ago."
The bottom line: This sea change might be fine for venture in the short-term, particularly as fee-hungry firms raise larger funds. But it's also a major risk to dump your longtime partner for someone who might view you as a fling.
