Liquidity Crunch at the Top – Why Endowments Globally Need Venture to Pay Back

Venture capital has long been a cornerstone of institutional portfolios. For decades, endowments and pensions have relied on venture exposure to deliver superior long-term returns and the strategy has paid off, at least on paper. But the latest State of the Markets: H2 2025 report from Silicon Valley Bank shows a growing disconnect between venture capital’s reported value and its realized liquidity.

Paper Rich, Cash Poor

Nearly 40% of committed capital in the average VC fund comes from “liquidity-sensitive” limited partners such as pensions, endowments, and foundations with regular payout obligations. The tension is that much of the value created in recent funds remains undistributed, even among top-quartile managers, and that’s true not just for recent vintages but reaching back to 2014. When exit markets slow, paper NAV rises faster than cash; the result is a widening gap between portfolio marks and the dollars that actually hit institutional operating accounts.

That gap is now showing up in university budgets and foundation statements. The NACUBO-Commonfund data SVB cites shows that in 2024, the average effective spending rate of endowments grew by 4.3% in 2024. But in dollar terms, annual withdrawals grew by over 6%. At the same time, taxes on the largest endowments rose from 1.4% to 8.0%. About half of spending goes to student aid, with another 18% to academic programs and research, which are outlays that are hard to defer when capital calls keep coming but distributions don’t. This is the textbook definition of a liquidity mismatch: steady obligations funded by cash flows that have become irregular and delayed.

The Yale Model Meets Its Limits

The endowment model popularized by Yale, which included high allocations to private markets, low liquidity tolerance, and patient compounding, presumes a reasonably healthy recycling of capital. SVB’s analysis argues that assumption is being tested as realizations lag, forcing some institutions to re-examine the trade-off between return and liquidity. The report’s framing is careful: LPs don’t want to exit venture; they need it to pay them back, i.e., to translate marks into cash at a cadence that matches rising obligations. That phrasing captures the attitude shift: the model isn’t being abandoned, but it does need liquidity discipline to keep working through a slower exit cycle.

Mechanically, several forces have compressed the cash conversion rate. IPO activity has been selective and costly; with the average revenue growth for IPOs hovering around 9% in 2022–2025, with 7 of 17 recent IPOs pricing as down rounds, and underwriting/ongoing costs that weigh on smaller floats. In short: even with resilient long-run performance at the asset-class level, the timing and size of cash events have become less predictable. SVB’s IPO analysis is blunt: today’s listings are larger, slower, and pricier to execute, which naturally filters the pipeline and delays DPI.

SVB’s data shows the gap between paper value and actual cash returned is widening across both VC and PE portfolios. For some endowments, this has translated into short-term liquidity stress, forcing asset rebalancing or secondary sales to fund spending needs.

The Broader LP Recalibration

SVB’s narrative points to a behavioral shift among institutions: a more cash-aware stance while staying committed to venture. First, pacing is being reevaluated to re-sync commitments with expected liquidity. Second, the secondary market is increasingly a release valve for older vintages where DPI has stalled, allowing LPs to pull forward cash. Third, LPs are pushing for better visibility into distribution timing and write-down cadence, so that operating budgets aren’t built on marks that take years to convert.

This recalibration doesn’t contradict the “Yale Model”; it updates it for a slower exit cycle. SVB’s context explicitly contrasts strong long-term return credentials with today’s liquidity constraints, arguing the core challenge is cash management, not asset-class relevance.

The Structural Consequence

For venture funds, this new reality adds another layer of pressure. GPs now face a more demanding LP environment where liquidity expectations matter as much as performance metrics. Those that can demonstrate reliable distributions, through faster realizations, earlier partial exits, or fund-of-funds liquidity programs, may gain a fundraising advantage in the coming cycle. Expect LP questions to focus less on TVPI heroics and more on DPI cadence, continuation-vehicle design, and how a manager intends to harvest value from the long tail of assets.

The IPO window is not shut, but it rewards larger, steadier issuers with stable revenues and measured growth. That invites more creative sell-down paths: M&A to strategic buyers (many themselves VC-backed), staged secondaries, and NAV-aware timing that prioritizes DPI in the near term.

The Takeaway

Venture remains one of the most powerful long-term return engines in institutional portfolios, but return quality is now being judged as much by DPI and timing as by TVPI. SVB’s data shows why: a large share of VC capital comes from liquidity-sensitive LPs, while realizations, even in top-quartile funds and 2014-era vintages, have lagged.

For endowments and pensions, the mandate is pragmatic: align commitment pacing to realistic cash coming off older vintages, use secondaries tactically to smooth the slope, and demand clearer distribution forecasting from managers. For GPs, the edge will come from liquidity engineering: earlier partial exits where sensible, DPI-first continuation structures for durable winners, and transparent roadmaps for converting paper to cash without abandoning long-term compounding. Do that well and venture keeps its place at the core of institutional portfolios; do it poorly and pacing slows until distributions catch up.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: Why are distributions slower?

A: Selective IPOs and pricier listing economics (lower growth, higher costs) plus more undisclosed/less favorable M&A are delaying or diluting cash outcomes.

Q: Are institutions pulling out of venture?

A: No. The message is to improve the liquidity mechanism. LPs want better cadence and visibility on distributions, not abandonment of the strategy.

Q: What can GPs do now?

A: Engineer liquidity: partial sell-downs, continuation vehicles with DPI-first design, proactive secondary programs, and transparent distribution forecasts.

Q: What can endowments/pensions do?

A: Re-sync pacing to expected DPI, use secondaries to bridge, and press for write-down and distribution transparency so budgets aren’t built on paper.

Sources

1. State of the Markets: H2 2025. Silicon Valley Bank, 2025.