Venture capital (VC) has performed extremely well over the last 5, 10, and 15 years, beating the S&P 500 by more than 700 basis points on average.¹ Across market cycles, we have witnessed certain vintages reward investors with truly outsize returns, and we feel confident that current conditions could lead to similarly high-returning vintages. As we enter a period that we believe will be defined by less capital raised, smaller fund sizes, slower investment pacing, fewer market participants, and lower valuations, perhaps the time to overweight is now.

Since mid-January risk markets have experienced elevated volatility and weakness due to fears of the Fed’s tightening policy. Market segments with the highest valuations and most perceived sensitivity to rates have suffered the worst, as many investors took gains after a sustained post-pandemic run. While it is important to not overreact to short-term swings, it’s also important to assess possible downside moves from here based on both technicals and fundamentals. 

2020 was an incredible year in the capital markets. However, in the wake of very strong performance for both stocks and bonds over the past 12-months, as well as the past decade, most traditional assets are looking expensive. At the same time, concerns over inflation continue to build, and questions about the trajectory of Fed policy dominate investment conversations.