The biggest risk for a late-stage private company is a growth slowdown. This forces a valuation model shift from a high multiple on future growth to a much lower multiple on current cash flow—a painful transition when you can't exit to the public markets.

Similar to the short-lived direct listing wave, the idea of staying private indefinitely will likely only apply to a handful of elite, capital-rich companies like SpaceX. The vast majority of successful startups will still follow the traditional IPO path to provide liquidity and access public markets.

The traditional IPO exit is being replaced by a perpetual secondary market for elite private companies. This new paradigm provides liquidity for investors and employees without the high costs and regulatory burdens of going public. This shift fundamentally alters the venture capital lifecycle, enabling longer private holding periods.

The quality of public small-cap companies, measured by Return on Invested Capital (ROIC), has plummeted from 7.5% to 3% over 30 years. This degradation means high-growth opportunities now predominantly exist in the later-stage private markets. Institutional investors must shift their asset allocation to venture and growth equity, which has become "the big leagues," not a bespoke asset class.

Success in late-stage venture resembles trading more than traditional investing—it's about buying and selling on momentum. However, this "new public market" has a critical flaw: while liquidity exists on the way up, it vanishes on the downside, making it impossible to execute a true trading strategy when a correction occurs.

As high-growth tech companies delay IPOs, the public small-cap market is left with lower-quality assets. The return on invested capital (ROIC) for the Russell 2500 index has more than halved over 30 years, signaling a fundamental shift for institutional investors.

The venture capital paradigm has inverted. Historically, private companies traded at an "illiquidity discount" to their public counterparts. Now, for elite companies, there is an "access premium" where investors pay more for private shares due to scarcity and hype. This makes staying private longer more attractive.

Institutional allocators are currently over-allocated to illiquid private assets due to the denominator effect. When distributions from these funds finally resume, the initial wave of capital will be used to rebalance portfolios back toward public markets, not immediately recycled into new private equity commitments, a trend private GPs may not see coming.

The trend of companies staying private longer and raising huge late-stage rounds isn't just about VC exuberance. It's a direct consequence of a series of regulations (like Sarbanes-Oxley) that made going public extremely costly and onerous. As a result, the private capital markets evolved to fill the gap, fundamentally changing venture capital.