The Liquidity Traffic Jam: Why Secondaries Are the Only Game in Town

The venture capital industry has a metric problem.

For the last decade, we have worshipped at the altar of TVPI (Total Value to Paid-In Capital). We celebrated mark-ups. We congratulated the founders on valuation step-ups. We acted as if paper gains were spendable currency.

They are not.

You cannot pay your mortgage with TVPI. You cannot fund an obligation with a valuation certificate. And you certainly cannot raise a new fund on the back of unrealised gains.

The reality of 2025 is stark: The exit door was too small for the volume of capital that entered the room. We are not in a temporary pause. We are in a structural deadlock. A liquidity traffic jam.

And until we admit that the IPO market cannot clear the backlog, we remain paralysed.

The Data of the Drought

To understand the severity of the situation, you have to look at the cash on hand.

Distributions to Limited Partners (DPI) have hovered in the single digits for eight consecutive quarters.

If that sounds bad, it is. It matches the absolute depths of the Global Financial Crisis.

This is not a "slow cycle." It is a systemic failure of the traditional exit model. The venture capital promise is built on a 10 to 12-year vintage cycle. You deploy, you grow, you exit, you return.

That cycle is broken. Companies are staying private longer. The IPO window, while technically "open," is selective and punishing. The capital that flowed in during the 2020–2021 excess is trapped in a bottleneck that public markets cannot accommodate.

The LP Paralysis

This drought has created a cascade of failure for fundraisers.

Emerging managers are confused. They point to their portfolio performance. They point to their TVPI. They ask why LPs aren't writing cheques.

The answer is simple: The LPs are illiquid.

Institutional investors operate on a recycling model. They commit to Fund IV using the distributions from Fund II. When the distributions stop, the commitments stop.

LPs are not "closed for business." They are simply stuck. They are suffering from the denominator effect, where their private-market allocation appears artificially high because their public portfolios have been marked to market while their private portfolios remain at 2021 valuations.

The LPs are now forcing the General Partners' hand. The question in diligence is no longer "What is your MOIC?"

It is: "When do I get my money back?"

The $210 Billion Release Valve

Because the IPO market failed to provide a release valve, the private market built its own.

We are witnessing the explosion of the secondary market. Volume is projected to exceed $210 billion this year alone.

This is a fundamental shift in the psychology of the asset class.

Five years ago, a secondary transaction carried a stigma. It was viewed as a "distress sale." If you were selling early, it meant you didn't believe in the long-term vision.

Today, that stigma is dead. Secondaries have graduated from a distress mechanism to a sophisticated portfolio management tool.

GP-led continuation funds, strip sales, and tender offers are becoming standard operating procedure. They are the only way to reconcile the timeline mismatch between founders (who need 12+ years) and LPs (who need liquidity in 10).

The Founder and GP Imperative

If you are a General Partner or a Founder, you have a choice.

You can wait. You can hope the IPO window swings wide open, the public markets regain their appetite for risk, and valuations return to historical highs.

Or you can take control.

Waiting is not a strategy. It is gambling.

For GPs, this means swallowing your pride. It means accepting that a secondary sale at a 15% discount to NAV (Net Asset Value) is better than holding a mark that never realises. Real cash at a discount beats imaginary cash at a premium every single time.

For Founders, this means engineering liquidity. You cannot expect early employees and seed investors to wait 15 years for a payday. If you want to retain talent and keep your cap table clean, you need to facilitate secondary programs.

Liquidity is Truth

The era of "growth at all costs" is over. It has been replaced by the era of "DPI at all costs."

The winners of the next decade won't be the funds with the highest paper marks on their websites. They will be the funds that returned cash when the market was dry.

The traffic jam is here. The smart money isn't sitting in the queue honking the horn. They are taking the slip road.