Key Takeaways
- • Venture capital firms are increasingly adopting continuation funds—a liquidity strategy traditionally used in private equity—to extend portfolio company holding periods beyond standard 10-year fund lifecycles and address mounting distributions pressure from large institutional LPs.
- • Liquidity constraints have intensified as mega-funds proliferated: Andreessen Horowitz raised $9 billion across three funds in 2022, Lightspeed Venture Partners raised $6.7 billion across three funds in 2022, and NEA raised $6.2 billion across two funds in 2023, creating structural pressure for near-term returns.
- • GP-led secondary transactions are projected to account for 41% of the $140 billion secondary transaction volume in 2024, up sharply from 24% in prior years, reflecting rapid adoption of continuation fund strategies across the venture ecosystem.
- • Continuation funds account for 45-50% of secondary market deal volumes, establishing them as a material growth engine within venture secondaries as exit timelines lengthen and IPO markets remain constrained.
- • Implementation requires venture managers to register as investment advisers and establish new vehicles to roll select portfolio assets, a structural shift signaling the convergence of venture and private equity operational practices.
Summary
Venture capital has entered a new phase of liquidity management, adopting continuation fund structures that historically dominated private equity practice. According to Mathew Eapen and Shane Goudey, partners at Sidley Austin who advise private investment funds on formation and operations, venture firms are rapidly deploying these secondary market vehicles in response to acute distribution pressures from institutional limited partners.
The structural urgency stems from capital-raising velocity and investor composition. Leading firms raise multibillion-dollar funds every three to four years—or faster—creating expectations for consistent distributions from underlying portfolio performance. With endowments, pension plans, sovereign wealth funds, and gatekeepers now representing substantial LP bases, fiduciary pressure has intensified. Goudey emphasized that "venture horizons are very long, and they're getting longer by the day from a liquidity standpoint," noting that venture firms must source liquidity either from portfolio distributions or secondary transactions to fuel new fund raises.
Continuation funds directly address this constraint by allowing managers to maintain extended relationships with maturing portfolio companies beyond traditional fund lifecycles. Rather than forcing exits at arbitrary term endpoints, these structures preserve upside participation while providing earlier liquidity to existing LPs. Lightspeed Venture Partners and New Enterprise Associates have emerged as active practitioners of this strategy, alongside other tier-one firms.
The market scale underscores the strategic significance. Continuation funds now represent 45-50% of secondary market deal volumes, establishing them as a primary growth vector for venture secondaries. GP-led secondary transactions more broadly are forecast to reach 41% of the projected $140 billion secondary transaction volume in 2024—a sharp increase from 24% in prior periods. Operationally, establishing a continuation fund requires the sponsoring venture firm to register as an investment adviser and create a new vehicle into which selected portfolio assets are rolled, representing a fundamental shift toward private equity-style fund architecture within the venture industry.
The structural urgency stems from capital-raising velocity and investor composition. Leading firms raise multibillion-dollar funds every three to four years—or faster—creating expectations for consistent distributions from underlying portfolio performance. With endowments, pension plans, sovereign wealth funds, and gatekeepers now representing substantial LP bases, fiduciary pressure has intensified. Goudey emphasized that "venture horizons are very long, and they're getting longer by the day from a liquidity standpoint," noting that venture firms must source liquidity either from portfolio distributions or secondary transactions to fuel new fund raises.
Continuation funds directly address this constraint by allowing managers to maintain extended relationships with maturing portfolio companies beyond traditional fund lifecycles. Rather than forcing exits at arbitrary term endpoints, these structures preserve upside participation while providing earlier liquidity to existing LPs. Lightspeed Venture Partners and New Enterprise Associates have emerged as active practitioners of this strategy, alongside other tier-one firms.
The market scale underscores the strategic significance. Continuation funds now represent 45-50% of secondary market deal volumes, establishing them as a primary growth vector for venture secondaries. GP-led secondary transactions more broadly are forecast to reach 41% of the projected $140 billion secondary transaction volume in 2024—a sharp increase from 24% in prior periods. Operationally, establishing a continuation fund requires the sponsoring venture firm to register as an investment adviser and create a new vehicle into which selected portfolio assets are rolled, representing a fundamental shift toward private equity-style fund architecture within the venture industry.
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