This week we thought we would summarize the findings and Venture Capital trends of Venture Capital Journal’s LP Perspectives for 2022. Here is the general LP sentiment:
Capital outlook: 49% of the interviewed LPs will keep the same investment amount as the previous year, 11% will allocate less, but the great news is that 40% will invest more capital into VC.
Setting targets: only 16% of investors said they are over-allocated to venture, while 41% are under-allocated. This is up from last year when only 23% of investors noted they were under-allocated.
It’s all about performance: Venture has performed best. 68% of venture investments outperformed against their benchmark over the past 12 months, compared to 59% in Private Equity and 35% in Real Estate.
Rosy outlook: a staggering 40% of Venture LPs expect venture will continue surpassing their expectations and perform above their benchmarks and only 11% believe the time has come and that venture investments will fall below benchmarks this year.
Staying up late to worry: out of eleven factors to select from the top 7 concerns were Extreme market valuations, Continued COVID 19 impact, Recession in core markets, Threat of higher inflation, Regulatory changes, Trade wars and Cybersecurity threat.
Setting the terms: No surprise here; the top LPA term that causes the most disagreement with GPs when conducting fund due diligence is management fees, closely followed by unsatisfactory (or lack of) key man clause. Others include the structure of carry distribution waterfall, performance fees, investment restrictions, GP commitment, lack of clawback provision, hurdle rate, set up cost and, finally, Board of representation policy.
No ‘I’ in ‘team’: 91% of LPs agree that GP team size and investment capacity are a major part of the due diligence process. 59% also agree that succession planning and retention plans at the GP level are integral to their due diligence while only 15% find it crucial to have evidence of diversity and inclusion at the GP level during this phase.
No warming on climate tech: 39% of LPs say that GPs are now taking climate change seriously in their investment actions. However, that figure is down slightly from 41% in last year’s study – does this mean it’s overhyped?
ESG revolution: on a brighter note, 74% of LPs believe that a strong ESG policy will lead to better long-term returns in their private markets portfolio.
Seems like an overall positive outlook for venture. This study was conducted drawn from interviews with 111 institutional investors worldwide, 75% of them based in the US or Western Europe from August to September 2021.
Nearly half a year into 2022, certainly not without tragedy and turmoil, can we still trust the sentiments listed above will make their way to be true?