Key Takeaways
- • Venture capital firms are increasingly adopting continuation funds—a secondary market liquidity strategy traditionally used in private equity—to extend investment horizons beyond standard 10-year fund terms and address mounting liquidity pressure from limited partners.
- • Liquidity constraints have intensified as mega-funds raised in recent years require distributions to support new fundraising cycles occurring every three to four years; Andreessen Horowitz raised $9 billion across three 2022 funds, Lightspeed raised $6.7 billion across three funds in the same period, and NEA raised $6.2 billion across two funds in 2023.
- • Continuation funds enable venture managers to maintain longer-term relationships with maturing portfolio companies while generating interim returns without forced exits in a slow exit market, with leading firms including Lightspeed Venture Partners and NEA pursuing these strategies.
- • GP-led secondary transactions (which include continuation funds) are projected to account for 41% of the estimated $140 billion in secondary transaction volume in 2024, up sharply from 24% previously, signaling structural shift in the venture secondary market.
- • Continuation funds have emerged as a primary growth driver in the secondary market, accounting for 45-50% of deal volumes in recent periods, reflecting the venture industry's accelerating adoption of private equity-style liquidity strategies.
Summary
The venture capital industry is increasingly turning to continuation funds as a solution to mounting liquidity pressures driven by extended investment timelines and the need to support new fundraising cycles. According to Mathew Eapen and Shane Goudey, partners at law firm Sidley Austin who advise private investment funds on formation and operations, the primary challenge facing venture managers today is generating distributions to limited partners while maintaining longer holding periods for maturing portfolio companies.
"Venture funds are being raised every three to four years, if not quicker than that," Goudey noted, emphasizing that the "fuel in the tank" increasingly depends on distributions from underlying portfolio companies or secondary liquidity events rather than traditional exits. This pressure has intensified as venture firms have raised record-sized funds from institutional investors including endowments, pension plans, sovereign wealth funds, and gatekeepers with fiduciary responsibilities. In 2022 alone, Andreessen Horowitz raised $9 billion across three funds while Lightspeed Venture Partners raised $6.7 billion across three funds; New Enterprise Associates raised $6.2 billion across two funds in 2023.
Continuation funds represent a structural adaptation by the venture industry to match practices long established in private equity. These vehicles allow managers to recapitalize and extend their relationship with portfolio companies believed to have additional runway before exit, effectively creating new funds focused on minority positions in existing holdings. Firms including Lightspeed and NEA have begun pursuing continuation fund strategies as a means of addressing both liquidity demands and extended venture horizons.
The secondary venture market itself has reached material scale, with GP-led transactions—including continuation funds—projected to represent 41% of the estimated $140 billion in secondary transaction volume during 2024, a significant increase from 24% in prior periods. Continuation funds themselves now account for 45-50% of secondary deal volumes, establishing them as a core component of venture capital's evolving exit and liquidity infrastructure. This trend reflects broader structural shifts in venture capital as the industry adapts private equity playbooks to address the realities of extended technology company development timelines and constrained public market appetite for venture-backed exits.
"Venture funds are being raised every three to four years, if not quicker than that," Goudey noted, emphasizing that the "fuel in the tank" increasingly depends on distributions from underlying portfolio companies or secondary liquidity events rather than traditional exits. This pressure has intensified as venture firms have raised record-sized funds from institutional investors including endowments, pension plans, sovereign wealth funds, and gatekeepers with fiduciary responsibilities. In 2022 alone, Andreessen Horowitz raised $9 billion across three funds while Lightspeed Venture Partners raised $6.7 billion across three funds; New Enterprise Associates raised $6.2 billion across two funds in 2023.
Continuation funds represent a structural adaptation by the venture industry to match practices long established in private equity. These vehicles allow managers to recapitalize and extend their relationship with portfolio companies believed to have additional runway before exit, effectively creating new funds focused on minority positions in existing holdings. Firms including Lightspeed and NEA have begun pursuing continuation fund strategies as a means of addressing both liquidity demands and extended venture horizons.
The secondary venture market itself has reached material scale, with GP-led transactions—including continuation funds—projected to represent 41% of the estimated $140 billion in secondary transaction volume during 2024, a significant increase from 24% in prior periods. Continuation funds themselves now account for 45-50% of secondary deal volumes, establishing them as a core component of venture capital's evolving exit and liquidity infrastructure. This trend reflects broader structural shifts in venture capital as the industry adapts private equity playbooks to address the realities of extended technology company development timelines and constrained public market appetite for venture-backed exits.
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