Should a venture fund recycle proceeds from an early exit back into the portfolio rather than distributing them to LPs?

Geoff Lewis · Oct 5, 2022

Recycling proceeds to maximize fund multiple is better than distributing cash to LPs, because LPs don't actually reward early distributions and interests are aligned around long-run multiple

Bedrock returned a 10x+ life-to-date multiple on Bitcoin and Ethereum in cash from Fund One and received not a single thank-you email despite being a top 5% fund, so distributions bought them nothing

Scope: based on their own Fund One experience; assumes a recycling fund structure

35:30 20VC: The Rippling Memo: Bedrock's Geoff Lewis on The Conviction Building Process to Write a $200M Check and Co-Lead Rippling's Series D | Why No Competitor Can Out Execute Rippling | Uncapped SAFE's Why You Should Never Do Them and Why Geoff Broke The Ru

Hunter Walk · Jan 30, 2023

Cash should only be returned to LPs when there's a specific reason not to recycle it

40:17 20VC: Homebrew's Hunter Walk and Satya Patel on Why $100M is Not Enough To Execute a Seed Strategy Today | Why They Decided not to Raise New External Funds | Where Are We in the Cycle & What is Truly F***** | Why Founders Should Take Secondaries Earlier

Jason Lemkin · May 27, 2024

Seed funds should recycle everything rather than distribute early exits

He distributed a $100M lockdown-era exit early in the fund's life and now wishes he had those tens of millions to deploy into the portfolio — recycling and even 3x-ing it would have added another turn to the fund

Scope: admits he may not fully understand recycling until after he retires; hard to manage across many funds

60:14 20VC: Why Seed is Systemically Broken | Why Pricing is Worse Than Ever and There is More Funding Than Ever | Benchmarks for Churn, Retention and Growth Rates - Good vs Great | Why Last Vintage for Private Equity Will Suck with Jason Lemkin

Harry Stebbings · Feb 19, 2024

Effective recycling in venture funds is largely over because the small $50-70M M&A exits that used to generate quick liquidity have disappeared

Without small acquisitions there is no early liquidity to redeploy, so dollars can no longer be used as efficiently within a fund

36:25 Recycling is largely over since small early exits have disappeared

Roger Ehrenberg · Feb 19, 2024

Recycling is structurally very hard for very early stage funds, and using SPVs to solve the capital problem is the wrong answer

You invest so early that opportunities to re-up arrive long after you've deployed and reserved for fees; many firms reach for SPVs, but IA refused and instead forced itself to find real recycling solutions

36:56 Recycling is structurally hard for very early stage funds and spvs are the wrong fix