How Venture Capital Has Fundamentally Changed

In Brief:

The venture capital landscape is experiencing a fundamental shift as secondaries now account for 71% of all exits in 2024, marking a dramatic departure from traditional IPO and M&A paths. This transformation reflects longer exit timelines, increased private capital availability, and changing fund structures that are reshaping how investors and founders approach liquidity. Hunter Walk, partner and co-founder of Homebrew, brings a unique perspective to this evolving ecosystem in his appearance on the Thrive Through Connection podcast. Since 2013, Homebrew has invested in seed-stage companies, and in 2022 made the bold decision to stop raising external capital and invest their own money instead. Walk also co-founded Screen Door, a fund of funds backing emerging venture managers, giving him visibility across the entire venture ecosystem. His insights reveal how secondary markets have evolved from distressed situations to strategic tools for portfolio management and founder support.

Big Picture Drivers:

• Extended Exit Timelines: Traditional 7-10 year exit windows have stretched beyond 10 years, forcing investors to seek liquidity alternatives

• Capital Market Bifurcation: The venture ecosystem has split into billion-dollar mega-funds and sub-$250 million specialized funds with different objectives

• Regulatory Constraints: M&A restrictions and IPO market hesitancy have reduced traditional exit opportunities

• Private Capital Abundance: Influx of crossover and growth investors has enabled companies to stay private longer with multiple funding rounds

Key Themes:

• Founder-Investor Alignment: The shift toward treating secondaries as business partnership decisions rather than distress signals

• Portfolio Optimization: Using secondaries as tools for capital recycling and strategic position management across fund lifecycles

• Market Maturation: Evolution from reactive, circumstantial transactions to proactive, structured liquidity strategies

• Ecosystem Diversification: Recognition that venture needs multiple types of "tools" rather than homogeneous approaches

Key Insights:

• Seed Stage Commoditization: Large firms now compete directly in seed rounds by writing bigger checks and converting them to Series A rounds, breaking the traditional bundling of capital and counsel.

• Self-Funding Strategy: Homebrew's decision to invest their own capital rather than raise external funds allows greater flexibility in deal structure and removes traditional ownership targets and fund size constraints.

• Secondary Decision Framework: Successful secondary strategies require evaluating three key factors: valuation-to-progress ratios, investor alignment across the cap table, and fund management timing considerations.

• Liquidity as Founder Support: Strategic secondary transactions can remove exit pressure from founders, allowing them to focus on long-term value creation rather than premature company sales.

• Emerging Manager Opportunity: First-time fund managers view secondaries as essential tools for portfolio management when they lack resources for opportunity funds or SPVs.

• Relationship-Driven Transactions: The most successful secondary deals occur within existing financings to aligned investors, preventing cap table deterioration and maintaining founder control.

Memorable Quotes:

• "The seed stage used to be this sort of protected class. It was different than other rounds of venture and now it's frankly not that different." - Hunter Walk, explaining how seed investing has become commoditized

• "Your fund is never the right size. It's always too big or too small... the short summary is everybody has a plan till they get punched in the face." - Hunter Walk, on the reality of fund deployment versus planning

• "I have 250,000 followers on Twitter and no LPs. Try me." - Hunter Walk, describing the leverage that comes from founder-focused investing without LP constraints

• "If you're selling that must mean you're not believing... There's all sorts of reasons why." - Hunter Walk, challenging the stigma around secondary transactions

• "Am I going to be buried with company logos on my tombstone that were enduring great businesses that created value not just for their VCs and founders, but for employees and ultimately retail investors." - Hunter Walk, on his definition of venture success

The Wrap: 

The secondary market transformation represents more than a tactical shift in venture capital—it signals a maturing ecosystem adapting to new realities of longer hold periods and diverse investor needs. Walk's perspective suggests that secondaries, when executed thoughtfully, can strengthen rather than weaken the founder-investor relationship by providing flexibility and removing artificial pressures. As the venture industry continues to evolve, the ability to navigate secondary markets strategically may become as important as picking winning companies, particularly for emerging managers who need every tool available to compete effectively.