VCs are willing to "hold their nose" and pay extremely high multiples for one or two exceptional companies they feel are essential to win. However, unlike in 2021, they are not applying this undisciplined, high-valuation strategy to their entire portfolio, demonstrating a more disciplined approach to portfolio construction.
Despite seeing 100x revenue multiples reminiscent of 2021, VCs are not accelerating their fund deployment or rushing back to fundraise. This more measured pace indicates a potential lesson learned from the last bubble, where rapid deployment led to poor vintage performance and pressure from LPs.
In frothy markets with multi-billion dollar valuations, a key learned behavior from 2021 is for VCs to sell 10-20% of their stake during a large funding round. This provides early liquidity and distributions (DPI) to LPs, who are grateful for the cash back, and de-risks the fund's position.