|
Yes, evolution and disruption will happen. Investing into "better" products is relative, but depends upon how much enshittification has occured in said market/markets versus expectation of the market. Monopolistic/oligopolistic market players have lower incentive to provide quality as their customers are captives. Just look at the kidney dialysis market or health markets where customers are often worse off after "consuming" the product than before. Appetite for disruption is present in markets with some form of equilibrium that is not aligned with expectations of the customer. The VC industry will evolve, but many individual firms will not be given a chance by LP's. There is a tension between marketing TVPI and DPI to LP's. In up markets, LP's are less concerned about returns and get excited about markups, probably because there is likely to be a buyer later on. In down markets, LP's feel overexposed and DPI means everything. Later stage VC's seem to be more susceptible to cyclical disruption in the market. Earlier stage VC's are also impacted, but there is a longer delay and portfolio companies have more headroom. Earlier stage VC's are less susceptible on the porfolio side, but exit periods will lengthen. Cyclical disruption rears its ugly head in several forms: LP funding and portfolio company success. Approaches in portfolio structure in a zero interest rate environment is different from what happens in a more "normal" environment. "Better" well known funds are more likely to see funds, but with a lower expectation returns. Emerging managers who may be closer to the opportunities in a new wave of tech often realize better returns on average, but they are unknown by LP's and seen as riskier. Exit hypotheses and odds help build an idea of how the math works in a portfolio. Smaller/earlier stage VC's have more exit options: acquisitions, 2ndaries, and IPO's. Few companies can scale to a point where established/larger VC's will be happy with the returns. But, we're entering an environment where economics of the entrepreneur side are changing and this will also apply to VC's. With the new generation of tools, VC's don't really need to buy up a bunch of tools to manage their funds if they have the means to build it themselves. Small VC's don't have a budget to pay for tools. But VC funded companies form a small slice of innovation in economies. There are bootstrapped and angel funded deals. There are companies that start on public grants, in garages, and in university settings. The environment we are going into has lower barriers to entry in all kinds of crazy ideas, so there are many opportunities that are more possible now than they were before. |