According to BlockBeats, becoming a limited partner (LP) in venture capital (VC) has become increasingly disappointing. The current landscape presents significant challenges, moving beyond the traditional image of general partners (GPs) attending dinners and traveling. Many well-known funds are emotionally withdrawing, becoming complacent, and losing their drive, leading to indiscriminate investments. This trend has worsened since 2021, resulting in notable failures. The issues can be summarized as follows:
Firstly, there are unethical practices related to transactions. Shockingly, every second deal is incubated by other funds, manipulated to follow narratives for profit. These financings or products are not organically generated, with founders often not embarking on these journeys independently. This manipulation means significant stakes are held by insiders early on, leaving genuine investors at a disadvantage. Additionally, GPs sometimes accept personal checks or LP investments in co-investments, which are then sold off, a practice bordering on fraud but increasingly common.
Secondly, the opportunity for complete exits is bleak. Given the current scale of financing, these investments are unlikely to become liquid. This was evident last year. The issue is not just devaluation but the inability of funds to sell their holdings. While angel investors might still make small profits at the same fully diluted valuation (FDV), funds face greater difficulty. High entry valuations and the years-long gap between token issuance and liquidity pose significant challenges. Since 2022, few projects have launched their tokens, and with a typical two-year lock-up period, liquidity gaps can extend to five years, doubling previous timelines.
Thirdly, the diminishing returns of Web2 are evident. Despite the Web2 atmosphere, effective protections remain elusive. Equity support, founder golden handcuffs, and other legal boundaries have become more tangible but still relatively vague. The market is oversaturated with funds, projects, and overall saturation. The potential returns are no longer tenfold but at best twofold over several years. Holding mainstream coins is now a better strategy than investing in new tokens, a stark contrast to previous opportunities for higher returns.
Not all VCs are underperforming. Many have reached similar conclusions but have not publicly expressed them. The future presents significant challenges, requiring either a prolonged bear market for a complete reset or a tenfold increase in the user base to justify valuation growth. Investing in small, niche markets remains viable, even without exponential industry growth. However, VCs typically avoid such small segments, preferring the safety of collective success or failure. Ultimately, the VC investment cycle is a critical consideration.
Projects that have launched and survived continue to strengthen their foundations and experience, despite the challenges.