The Twenty Minute VCRoger Ehrenberg: Why VC Returns Will Get Worse & Why LP Incentive Structures are so Broken | E1117
At a glance
WHAT IT’S REALLY ABOUT
Roger Ehrenberg Dissects Broken LP Incentives And Shrinking VC Returns
- Roger Ehrenberg argues that while venture capital is awash in capital and mid-to-late stage is becoming commoditized, true early-stage, artisanal VC will remain differentiated and hard to scale. He believes traditional LP incentive structures are fundamentally broken, with many LPs prioritizing career risk and brand over net returns, but sees sovereign wealth funds and large family offices as a corrective force demanding fairer fees and real DPI. Liquidity will remain constrained, with continuation funds emerging as a key bridge for GPs and LPs stuck in illiquid but high-quality portfolios. Beyond market structure, he discusses portfolio liquidity decisions, investor psychology, wealth, raising children in financial abundance, and the ingredients of a long-term marriage and career motivation.
IDEAS WORTH REMEMBERING
5 ideasEarly-stage venture will stay artisanal while mid/late stage commoditizes.
Ehrenberg rejects the idea that all VC is commoditized; he sees mega-firms evolving into multi-stage asset managers, while true incubation, pre-seed, and seed remain boutique, hands-on, and structurally hard to scale.
Traditional LP incentive structures are misaligned and enable mediocrity.
Many endowment and pension LPs optimize for brand safety and career risk (being in Sequoia/Andreessen) rather than net DPI, allowing underperforming managers to raise successive billion-dollar funds and collect high fees without real distributions.
New LP classes will pressure mid/late-stage fees and returns.
Sovereign wealth funds and large family offices, focused on after-fee performance, are reshaping the LP base; Ehrenberg expects a hedge-fund-like equilibrium where differentiated, smaller, long-dated managers command premium fees while large, later-stage platforms face fee compression.
Continuation funds will be a major liquidity valve in a frozen market.
With IPO and M&A windows largely shut, he expects more managers to use continuation vehicles to crystallize value, let impatient LPs exit, and bring in new capital at today’s valuations, especially for high-quality portfolios caught in bad timing.
Venture still belongs in portfolios, but sizing and expectations must adjust.
For perpetual or very long-term investors, a 5–7% allocation to top managers can add meaningful convexity, even if industry returns compress; the key is accepting illiquidity, focusing on manager selection, and targeting a clear premium (e.g., 500–700 bps) over liquid alternatives.
WORDS WORTH SAVING
5 quotesVenture is never gonna be commoditized. Maybe mid and late stage will stop looking and feeling like venture and feel more like institutional asset management, but incubation, pre-seed and seed will always occupy a different place.
— Roger Ehrenberg
Traditional LP structures are completely broken. LPs have been enablers of too many venture firms being created and of venerable Silicon Valley firms raising Fund 12, 13, 14 when they haven’t even returned capital from Fund 4.
— Roger Ehrenberg
The ability to withstand short-term pain for long-term gain is a superpower. Being able to let a thesis play out, even if it’s unpopular, can lead to amazing compound returns.
— Roger Ehrenberg
I’m not a regretful person. As long as you’re thoughtful and analyze the context and trade-offs, it kind of is what it is. Life is not in your control.
— Roger Ehrenberg
You should never have the mindset of winning or losing versus your spouse. It’s not about winning. Words matter, and sometimes the best thing you can do is just not say that thing you’re dying to say.
— Roger Ehrenberg
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