VC writedowns
All the big crossover funds have taken huge writedowns for 2021/2020 vintage investments. Have trad VCs done same and how will returns look?
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Based on the most helpful WSO content, it seems that the VC industry is indeed going through a challenging period. The business model of VC, which typically involves a high failure rate with the expectation that the few successful investments will cover the losses, is being tested. This is due to a cooling IPO market and some significant failures from highly hyped startups.
In terms of write-downs, while the context doesn't provide specific data on traditional VC firms, it does suggest that there's a shift in the market dynamics. The frothy days of 2021, where high returns were more common, are giving way to a period where returns may be less appealing. This could lead to LPs doubling down on established managers, potentially affecting the returns of emerging managers.
Furthermore, the recent SVB crisis has raised concerns about access to debt and other forms of non-dilutive capital for companies. This could further impact the returns of VC firms.
However, it's not all doom and gloom. The context suggests that this could be a promising time for venture capital. Valuations are starting to come down, and deal quality seems to be holding steady. This could lead to improved returns in the future, especially in sectors that are addressing urgent challenges such as climate tech, clean energy, and clean transportation.
Remember, though, that while I'm a pretty smart monkey, I don't have all the answers. For a more detailed analysis, you might want to check out some of the other threads on WSO or consult with a financial advisor.
Sources: This is the perfect time to go into VC, Which investing strategy will be most challenged this decade (‘20 through ‘29)?, Distressed Investing: This Time It's Different
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