By Rohit Yadav, CAIA
Venture is at a true inflection point—not just experiencing a minor disruption but undergoing a fundamental misalignment. Don’t get me wrong, this dissonance isn’t inherently negative. Instead, it signals a pivotal moment in the evolution of venture, one that calls for a deep, inside-out rethinking of what the model truly means and where it’s headed across multiple dimensions. The recently published “Rethinking Venture Captial–A Strategic Lens” report (Link) explores these shifts in detail across the entire venture value chain. It attempts to understand the forces and make sense of the new terrain.
The Misaligned Machine
At the heart of venture’s growing dissonance is a deep structural mismatch between how capital flows into the system and how modern innovation actually unfolds. This isn’t just a mechanical flaw, it’s a misfit that compromises the system’s ability to deliver on its promise. I outline the three-leg issue with venture as follows:
The capital inflow leg is rooted in rigid, decade-long (10+2) fund structures.
The technology leg, the core of the venture business, is evolving at warp speed (think AI), impossible to pin down.
The capital outflow leg, or the exit environment, is at the mercy of volatile, unpredictable macro forces.
In theory, a couple of these should work in harmony to deliver results for the asset class. In practice, they’re all out of sync for the venture. Right now, each part is accelerating—or stalling—on its own timeline.
1. Capital Inputs Structure: Fixed and Misaligned
Rigid Fund Models in a Chaotic Market
Most venture capital funds are still built on the traditional 10+2 closed-end structure: capital is committed for a decade (sometimes even more). This model was borrowed from the private equity (PE) and real estate (RE) sectors, which thrive on predictability, risk modeling, and operational refinement. However, venture is not PE, where funds buy mature companies that generate cash flows and then optimize them. RE follows long-standing processes where risk is largely quantifiable. Venture, by contrast, works in radical uncertainty.
Startups often begin with nothing more than a vision, and the path from idea to scale can veer wildly: hypergrowth in 18 months or 5 years of pivots before gaining traction. Trying to map this unpredictable journey onto a rigid, decade-long fund model is like strapping a jet engine onto a bicycle. Fund vehicles simply aren't built to handle the speed or the variability of what they are meant to power.
Incentive Misalignment Between Limited Partners (LPs) and VCs
Even more troubling is the disconnect between the long-dated nature of venture investing and the short-term performance expectations of LPs. Most capital allocator functions within LPs are evaluated on an annual basis. Their internal reporting and political pressures tend to skew toward short-term optics rather than long-term conviction.
LPs might be driven by short-term performance pressure, which inhibits their ability to make optimal long-term decisions. Most venture returns concentrate in years 7–15, yet pressure for early liquidity often forces GPs to exit before maximum value is realized. This creates a system where GPs are chasing short-term milestones to satisfy LP scorecards, instead of staying focused on the nonlinear, often slow-burning nature of venture value creation.
Innovation Outrunning Regulation
The third source of input dissonance is regulatory misalignment. Innovation (from new retail vehicles, for example) has outpaced the creation of clear frameworks. Regulation lags and ambiguity raise costs and strain experimentation, especially for new fund structures aimed at expanding access and liquidity.
In summary, the capital entering the venture ecosystem is governed by outdated timelines, misaligned incentives, and lagging oversight.
2. Technology: Relentless Acceleration
The rate at which technology evolves has never been more staggering. Historically, we have seen gradual adoption curves: personal computing took decades to go mainstream, the internet followed a similar trajectory, and mobile adoption accelerated more rapidly. However, today we are seeing technological breakthroughs and startup ideas achieve mass adoption within a few years, sometimes even months.
AI is a prime example. AI development followed Moore’s Law for years, but recent advancements have obliterated any linear expectations. The rapid commercial adoption of generative AI and autonomous technologies defies the slow-moving nature of venture fund cycles. Let’s say a VC deploys capital into an AI-driven startup, but the competitive landscape could shift entirely within 24 months. The standard 10-year investment model is a relic in an era where technological innovation cycles run at 1-year intervals.
3. Capital Outflow: A Macro Minefield
If the capital input structural layer is sticky and the technology layer is on steroids, the capital outflow layer is under siege. The exit market, where VCs recoup their investments, is relentlessly attacked by macro forces: interest rate fluctuations, supply chain disruptions, and the ever-present uncertainty of global trade wars. The 2024 mega-election year has kept public markets jittery, impacting IPO valuations. Geopolitical tensions have further muddied the exit landscape.
Traditional exit avenues, such as public offerings and M&A, have become increasingly volatile, forcing VCs to hold assets longer than expected and often inject additional capital, whether they want to or not. Venture isn’t built to withstand this level of macro uncertainty. Structural liquidity timelines no longer align with underlying realities, as macro conditions now define exits more often than not.
The Core Problem: A Timing Dissonance
The real problem? Venture is currently operating on an incompatible and incoherent timeline:
Fund structures push LPs to think in terms of a 10+ year sticky horizon.
Technology is advancing at an increasingly rapid pace, with yearly cycles.
Macro forces pressure the industry to think and plan for 2- to 3-year outlooks.
The traditional fund model isn’t suited to the speed of technological evolution, nor is it aligned with the macro forces shaping the exit markets. The entire system is built on a foundation that no longer aligns with the market's reality. And yet, most of the industry is still clinging to the old model, pretending it will somehow adapt to a world that has already moved on. No other alternative asset class faces this level of dissonance.
Let’s use examples to explain this dissonance topic further:
Equities and Bonds offer exceptional tactical flexibility, allowing investors to pivot quickly with shifting market dynamics. Unlike illiquid assets, public markets provide the agility to recalibrate portfolios. Their liquidity results from the investment structures with which we trade these assets. Investors can respond decisively to macro shifts, geopolitical events, and sector changes, ensuring alignment with realities. A clear example is the recent record-breaking rotation out of U.S. equities, where managers reallocated capital at unprecedented speed—something only liquid markets enable.
Real Estate and Infrastructure operate on fundamentally longer time horizons, measured not in months or quarters, but decades. Defined by long-term planning, capital deployment, and asset lifespans, decisions such as building a port, railway, or bridge involve years of study, multi-year execution, and creating infrastructure that lasts 50 years or more. These are strategic, forward-looking markets, built to endure and thus less impacted by short-term financial market volatility. Idiosyncrasies like lease structures, location, or build quality matter but unfold over time, not overnight. Fundamental drivers take longer to materialize, limiting dissonance and noise in these asset classes.
Think About Office Real Estate Specifically: The shift to hybrid and remote work is not a sudden shock, it’s a structural evolution. Office space demand has been adjusting slowly over the last 5-10 years. Meanwhile, sub-sectors like data centers are thriving, fueled by over a decade of digital transformation and now accelerating with the advent of AI. This isn’t a new trend; it’s a long-established growth engine. On the macro side, interest rates matter, but changes unfold gradually. The market watches for interest rate moves of 25 bps, not 250, underscoring the asset class’s stability. Cap rate adjustments happen incrementally, not erratically.
Many asset classes, such as real assets—encompassing real estate, infrastructure, and renewables—are defined by long-term secular trends, rather than short-term surprises. There is no rush, no panic, and no reactive volatility. Venture, however, sits in the middle, with public markets on one end and real assets on the other, where the key legs of inputs, tech, and outputs aren’t aligning well. It doesn’t benefit from the liquidity of public markets, nor does it have the predictability of long-term real assets. Instead, it operates under a lag, where capital allocation decisions are made based on old-world timeframes while new-world dynamics govern the technology industry. Capital timelines, rapid technological advances, and macro headwinds pull in divergent directions. What once operated like a finely tuned engine now sputters under the strain of its contradictions.
Where Do We Go from Here?
Venture has entered the most dissonant phase in its history—a period likely to persist for the next 3–5 years. The real question isn’t just how long this phase will last, but whether it’s healthy for the ecosystem and how we adapt to win.
Here’s the reality: this isn’t temporary turbulence. It’s a structural realignment that challenges the very assumptions the venture model was built on. The mismatch between capital inputs, business models, and market outputs is neither good for the ecosystem nor sustainable. The world is moving faster than ever. Technology compresses time, and macro forces amplify volatility.
So, how do we win in this new environment?
On the capital input side: We must re-educate allocators about venture’s true role and realities as an asset class. Recognize that venture today isn't one monolith, it’s a set of strategies, each with different timelines and outcomes. Rethink fund structures to better align with venture’s inherent characteristics, rather than forcing artificial liquidity timelines that create strain for both founders and investors.
On the venture business side: We need to professionalize the industry further, raising standards around governance, execution, and founder support. We must focus on growing the secondaries market to inject liquidity and maturity into the ecosystem, especially in tougher cycles.
On the output side: Not every success needs to be an IPO. We must make M&A attractive again. The narrative that only outlier exits matter is outdated and dangerous in this phase. Sustainable, strategic outcomes should be celebrated.
Additional strategic takeaways for LPs and GPs are provided explicitly in the report on pages 11 and 12.
It’s time to stop papering over the cracks and start building a stronger foundation for venture capital. Because this dissonance phase isn't just a short-term problem, it's a warning of what might happen if we fail to course-correct. If venture capital doesn't evolve—in mindset, structure, and ambition—it won’t only lag behind, it will lose its place in investors' portfolios.
About the Contributor
Rohit Yadav, CAIA is the creator of The Big Book of VC, a quarterly insights project known for its “Venture Knowledge Alpha” tagline. His investment expertise goes beyond venture, spanning real estate, renewables, infrastructure and equities. As the host of TheOnePoint podcast, he explores niche venture topics with founders, VCs and LPs, bringing fresh perspectives to the industry. Rohit’s cross-functional background—spanning investments, technology, and operational areas like product management—equips him with a uniquely informed investment lens.
Learn more about CAIA Association and how to become part of a professional network that is shaping the future of investing, by visiting https://caia.org/