Are Megafunds Warping the Venture Market?

By Matthew Strozier, WSJ Pro

Good day. Beezer Clarkson, a partner at VC-fund investor Sapphire Partners, this week posted a detailed analysis under the provocative headline “Is Venture Broken?” In it, she examined whether megafunds are stomping their way into the earliest rounds, bloating valuations and possibly undercutting returns for everyone. 

“The concern seems to be that if megafunds are dominating at early [-stage], using investments at seed as option value on later rounds, mega-fund participation could be ‘breaking’ venture through their overspending—shifting how value is accruing—or not—at different stages,” she wrote.

After reviewing deal data, she concluded that venture remains intact—albeit with wildly dialed-up competition.

What’s your take: Are megafunds distorting early-stage investing, or by their sheer heft spurring boutique firms to make smarter bets? Or will high valuations make venture an even riskier bet? Please email responses to vcnews@wsj.com.

Last week, we asked how much more you think the surging venture secondary market will grow. The topic generated considerable discussion. Here are some of the edited and condensed responses:

• John Wuestling, partner at StepStone Group: “We calculate that the 500 largest private venture-backed companies have a total market capitalization of $3.7 trillion, with holders of 5% of this equity value considering secondary market sales at any given time, for a total addressable market of $185 billion. As companies continue to delay IPOs (average time from initial funding to public offering is now 13 years) and reach unprecedented values, we see a future where secondary volumes approach IPO proceeds as one of the top mechanisms for liquidity in the asset class.”
   
• Ben Slome, co-founder, New Vintage Partners: “With companies staying private longer and valuations still high, secondaries have shifted from being a niche tool to the main lever for liquidity. Policy changes may give the market another boost, but the direction of travel is already clear. Secondaries have plenty of room to run, and they’re becoming central to how venture actually works.”
   
• Ravi Viswanathan, founder and managing partner at NewView Capital: “Secondaries currently remain just a fraction of total venture AUM. If the market scales to private-equity norms, annual volume could exceed $70 billion. The real question isn’t if the secondary market will grow, but how quickly.”
   
• Don Butler, managing director at Thomvest Ventures: “I believe the secondary market will continue to grow. Where the secondary market remains constrained, however, is by the asymmetry that exists between those interested in selling and those interested in buying private company shares today. So as long as this asymmetry exists, this is more likely to drive greater liquidity in the top names in the secondary market and a bubble in the secondary-market valuations for these same names, rather than a broader increase in the ‘market’ itself.”
   
• Chris Lawrence, managing partner at Labyrinth Capital Partners: “It’s true that the lack of distributions across private markets has driven more liquidity-solution transactions, and this has contributed to the bump in secondary volume. But make no mistake, secondaries will remain an innovative part of the private-market landscape and are set to continue their upward trajectory given their correlation to overall private-market investment.”

And now on to the news... 

Top News

Oak HC/FT seeks $2 billion for sixth fund. Oak HC/FT is back on the fundraising trail, about three years after wrapping up its last main fund dedicated to investing in healthcare and financial-technology companies. The investment firm, which has offices in Stamford, Conn., and San Francisco, is looking to raise at least $2 billion for Oak HC/FT Partners VI, according to documents prepared for the $28.5 billion Teachers’ Retirement System of Louisiana, a modest increase on $1.94 billion of commitments the firm collected the last time around. Oak HC/FT invests in healthcare and financial-technology companies, largely in the U.S., according to the documents, prepared for the Louisiana retirement fund by pension consultant Hamilton Lane.

$1.2 Trillion

That is how much the world’s businesses are expected to spend on enterprise software this year, according to projections from Gartner.

Stada Eyes IPO in Autumn if Conditions Are Right

Private equity-backed Stada aims to launch an initial public offering this fall following a postponement this past spring, joining the scattering of companies queuing up to list before year-end. The German pharmaceutical company delayed plans to go public in April, citing geopolitical uncertainty and market volatility. Other companies like StubHub and Klarna also delayed IPOs earlier this year due to market volatility stemming from U.S. President Trump’s tariff policies. In the coming months, a handful of companies are planning to list after the number of IPOs on European exchanges in the first half of 2025 fell to its lowest point since the start of 2020—with 46 listings, according to data from Dealogic.

Taco Bell Rethinks Future of Voice AI at the Drive-Through

The most transformative technology in over a century may have finally found its limit: ordering tacos. Since last year, Taco Bell has rolled out voice AI-powered ordering at more than 500 drive-through locations, and now the chain is realizing that not every customer is a fan of the new tech. It is the latest sign that nearly three years into the generative AI boom, companies are still simply figuring things out.

Industry News

People

European investor Speedinvest said Will Wells joined the firm to lead its deep-tech team. He was previously a venture partner at both Lightspeed Venture Partners and Firstminute Capital.

Specialty care network provider Carrum Health appointed Andrew Steinberg as chief financial officer and Richard Eskew as chief legal officer. Steinberg most recently served as CFO at Honor. Eskew was previously at Accolade.

Exits

Cybersecurity company CrowdStrike plans to acquire data observability platform Onum for an undisclosed amount.

New Money

Framer, a website design platform based in Amsterdam and San Francisco, scored $100 million in Series D funding led by Meritech and Atomico, valuing the company at $2 billion.

Rain, a New York-based stablecoin infrastructure startup, grabbed $58 million in Series B funding. Sapphire Ventures led the round, which included participation from Dragonfly, Lightspeed Venture Partners and Norwest. Jai Das of Sapphire Ventures joined the company’s board.

InstaLILY AI, a New York-based platform that automates sales, service and operations across industries that rely on complex distribution, landed $25 million in Series A funding. Insight Partners led the round, which included participation from Perceptive Ventures and Marvin Ventures.

Aurelian, a Seattle-based AI startup that automates nonemergency calls for 911 centers, secured $14 million in Series A financing led by New Enterprise Associates.

Terraton, a San Francisco-based startup that is scaling biochar carbon removal in emerging markets, raised $11.5 million in seed funding co-led by Lowercarbon Capital and Gigascale Capital.

Central, an autonomous back-office platform built for startups, snagged $8.6 million in seed funding. First Round Capital led the round, which included participation from Y Combinator, Ritual Capital and Alumni Ventures.

Welcome Tech, a digital platform serving immigrant workforces, picked up a $7.5 million investment from TTV Capital, Westbound Equity Partners and others.

Heave, a St. Petersburg, Fla.-based startup connecting construction companies with on-demand heavy-equipment mechanics, fetched $7 million in Series A funding. Outsiders Fund led the investment, which included contributions from FJ Labs, Long Journey Ventures and Slow Ventures.

Tech News

A demonstrator holding a Palestinian flag near tents during a protest at Microsoft’s campus in Redmond, Wash., this month. PHOTO: DAVID RYDER/BLOOMBERG NEWS

• First Google, Now Microsoft: Tech Staff Are in Revolt Over Gaza
• Trash Pickup’s Future: Self-Driving Bins, Quieter Trucks and Hassle-Free Recycling
• Even Nvidia Has Speed Limits 
• Three Accused of Stealing TSMC Chip Secrets to Aid Japanese Supplier
• OpenAI Is Updating ChatGPT to Better Support Users in Mental Distress
• Founders No Longer Need to Be In at the Founding

The WSJ Pro VC Team

This newsletter was compiled by Matthew Strozier and Zachary Cole.

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley and Marc Vartabedian.