Kleiner Perkins and Penn’s Endowment on India, loss ratios, and the rise of secondaries | E1919

Market Growth

The secondary market in venture capital is experiencing a significant surge, with private fundraising down by 20% in 2023. Thomas Scriven attributes this growth to the natural evolution of a maturing asset class, noting that secondaries are up 65% year over year, raising $78.3 billion across 72 funds 1. He highlights the appeal of secondaries, especially in challenging public markets, as they offer a creative path to liquidity and reduce the J curve for investors.

I think for a lot of investors, the ability to shorten the cash cycle, to reduce the J curve, et cetera, is very attractive, and I think that holds true, really through the cycle.

--- Thomas Scriven

Despite the complexities involved, such as valuing direct secondaries, Scriven believes this trend is here to stay, although his endowment remains cautious, focusing on series A investments 1.

   

Investment Strategies

Strategic investment decisions in venture capital often involve doubling down on successful early-stage companies. Mamoon Hamid explains that their growth fund frequently increases ownership in their best companies, with some reaching up to 30% 2. This approach aligns with Thomas Scriven's view that high ownership or doubling down can create top-performing funds, emphasizing the importance of conviction and close relationships with entrepreneurs.

From our perspective, we're over diversified. So what we want to see our partners do is develop conviction, take the closeness they have with these entrepreneurs and the businesses, and pick those winners a little bit ahead of the market.

--- Thomas Scriven

The focus remains on identifying a few key companies that drive the majority of returns, a strategy that Jason Calacanis notes is common in the industry, where two to three names often define a fund's success 3.