Reid Hoffman, a founding father of LinkedIn and a longtime enterprise capitalist, isn’t any longer the general public face of the enterprise firm Greylock. Michael Moritz, a force at Sequoia Capital for 38 years, officially separated from the investment firm last summer. And Jeff Jordan, a top investor at Andreessen Horowitz for 12 years, left in May.
They are amongst essentially the most recognizable of a generation of Silicon Valley investors who’re getting out of enterprise capital at the top of a lucrative 15-year upswing for the industry.
Many more are leaving. Investors at Tiger Global, Paradigm, Lightspeed Venture Partners, Emergence Capital and Spark Capital have all announced plans to step back. Foundry Group, a enterprise firm in Boulder, Colo., that has backed 200 corporations since 2006, said in January that it will not raise one other fund.
Taken together, the regular thrum of exits has created a way that enterprise capital — a $1.1 trillion corner of finance that invests in young, private corporations, sometimes spawning enterprises like Apple, Google and Amazon — is in a moment of transition.
“We’re at a tipping point,” said Alan Wink, a managing director of capital markets at EisnerAmper, which provides advisory services to enterprise capital firms. While there have been waves of retirements previously, he said, this one is more pronounced.
The turnover creates a gap for brand spanking new investors to step up, potentially shifting who the facility players are in Silicon Valley. That might also change the calculus for young corporations as they resolve which enterprise firms to hunt money from.
Yet the newest generation of investors faces a start-up investment landscape that has turn into more difficult. Few enterprise capital funds are reaping the sorts of enormous windfalls — which come when start-ups go public or are bought — that may secure an investor’s fame. That also makes it harder for enterprise firms to lift money, with fund-raising by the industry falling 61 percent last yr and a few large firms cutting their targets.
The last generation of investors, including Mr. Moritz, 69; Mr. Hoffman, 56; John Doerr of Kleiner Perkins, 72; Jim Breyer of Accel, 62; and Bill Gurley of Benchmark, 57, rose to prominence by making bets on consumer web start-ups like Google, Facebook, Uber and Airbnb, which changed into behemoths.
Today’s up-and-coming enterprise capitalists are waiting for his or her version of those winners. Some of essentially the most highly valued start-ups — reminiscent of OpenAI, the substitute intelligence company valued at $86 billion — are in no hurry to go public or sell. And the frenzy around generative A.I. could take years to translate into big wins.
“We’re in this era of reset, based on where the technology is and where it’s going,” said David York, an investor at Top Tier Capital, which invests in other enterprise capital firms. “These stars will emerge.”
Industry stalwarts like Vinod Khosla of Khosla Ventures, Marc Andreessen of Andreessen Horowitz and Peter Thiel of Founders Fund proceed to jot down checks and wield influence. (All three firms have backed OpenAI.)
But many others are stepping down as a 15-year winning streak that reaped billions in profit for the industry has recently curdled right into a downturn. Venture capital firms typically invest over 10-year fund cycles, and a few aren’t desperate to join for an additional decade.
“There’s a bull market element to it,” said Mike Volpi, 57, an investor at Index Ventures who recently said he would step down from the firm’s next fund. Mr. Volpi’s decision was earlier reported by the newsletter Newcomer.
Mr. Wink of EisnerAmper said that in some cases, the investors that back enterprise capital funds were longing for fresh blood. The message, he said: Get out at the highest.
“Don’t be like lots of skilled athletes that sign that last contract and your performance on the sector was nowhere near where it was in your glory days,” he added.
For years, enterprise capital could only grow, propelled by low rates of interest that lured investors in all places to take more risk. Cheap money, in addition to the proliferation of smartphones and plentiful cloud storage, allowed many tech start-ups to flourish, producing bumper returns for investors who bet on those corporations over the past 15 years.
Investments in U.S. start-ups soared eightfold to $344 billion between 2012 and 2022, in keeping with PitchBook, which tracks start-ups. Venture capital firms grew from tiny partnerships into enormous asset managers.
The largest enterprise firms, including Sequoia Capital and Andreessen Horowitz, now manage tens of billions of dollars of investments. They have expanded into more specialized funds specializing in assets like cryptocurrencies, opened offices in Europe and Asia and dabbled in latest areas reminiscent of wealth management and public stocks.
Andreessen Horowitz, Sequoia Capital, Bessemer Venture Partners, General Catalyst and others also became registered investment advisers, which meant they might put money into greater than just private corporations. Venture capital was briefly the new job for ambitious young people in finance.
The expansions have contributed to decisions by some investors to step back. Mr. Volpi, who joined Index Ventures in 2009 after 14 years at Cisco, said he had gotten into enterprise capital for a change of pace from the company world. He backed start-ups including the work messaging company Slack and the A.I. start-up Cohere.
But through the years, Index — and the general enterprise industry — became larger and more professionalized.
“Maybe it’s for another person to go fight that battle,” Mr. Volpi said.
Many enterprise funds have also grown so large that owning a stake in a “unicorn,” or a start-up valued at $1 billion or more, isn’t any longer enough to reap the identical profits as before.
“If you must return thrice your fund, then a unicorn isn’t sufficient,” said Renata Quintini, an investor at Renegade Partners, a enterprise capital firm. “You need a decacorn,” she added, referring to a start-up value $10 billion or more.
The largest firms have migrated from providing their investors with profits from the standard definition of enterprise capital — very young, high risk corporations with potential for outsize growth — to a more general idea of “tech exposure,” Ms. Quintini said.
Manu Kumar, a founding father of the enterprise firm K9 Ventures, has felt the shift. Since 2009, he has written checks of $500,000 or less to take a position in very young corporations. Some of those investments, including Lyft and Twilio, went public, while others sold to greater tech corporations like LinkedIn, Meta, Google and Twitter.
But starting last yr, he said, the enterprise capital investors who would have provided the following round of funding to the start-ups he backed began demanding to see more progress before investing. (Start-ups typically raise a series of increasingly large financings until they go public or sell.) And potential buyers were shedding employees and cutting costs, not acquiring start-ups.
“Companies today only have one option,” Mr. Kumar said. “They need to construct an actual business.”
In October, Mr. Kumar told investors that the maths on his investment strategy not worked and that he wouldn’t raise a latest enterprise fund. He plans to observe the market and revisit the choice in a yr.
“I need to have conviction in what my strategy goes to be,” he said. “I don’t have that conviction for the time being.”
