The disappearance of the ten-year fund

Author: Dan Gray; Source: The Odin Times; Translation: BitpushNews

The benchmark venture capital funds taught in business school courses and through thousands of Limited Partnership Agreements (LPAs) typically have a ten-year lifespan. Capital calls are made in the first three to five years, invested into a portfolio of startups; in the remaining five years, as these companies are sold or go public, capital is recovered. Limited Partners (LPs) recoup their principal, along with any returns generated by General Partners (GPs), after which the fund is liquidated and closed.

This is the textbook model of venture capital, but today, it has essentially ceased to exist.

In April 2026, Robert Bartlett and Paolo Ramella from Stanford Law School published a paper exploring the impact of extended liquidity horizons on venture capital. Titled “The Disappearance of the Ten-Year Fund,” the paper used quarterly cash flow, net asset value (NAV), and portfolio company data from PitchBook covering funds established between 1995 and 2014.

Their research found that the ten-year term (theoretically anchoring fund accounting, performance reporting, fundraising cycles, and LP expectations) no longer aligns with the underlying economic realities of the venture capital market.

“In the later stages of a fund’s life, unrealized NAVs increase substantially across funds, especially in venture capital. Many funds continue to distribute capital even after twenty years.”

For funds from 2010 to 2014, the median venture capital fund’s NAV reported in the tenth year still exceeded its total committed capital. When the vehicle was theoretically supposed to be winding down, such a large proportion of fund value remained unrealized.

Bartlett and Ramella observed that the extension of fund durations is not because modern funds are slower at converting NAV into cash; the pace of distributions after liquidity events has not changed significantly. The core reason is that portfolio companies remain private longer and have grown larger.

“High NAVs in the later years mainly reflect greater value creation: these funds’ portfolio companies reached significantly higher valuations by year ten and exhibited more extreme ‘right tail’ (excess return) outcomes.”

From a time value perspective, the extension of liquidity horizons clearly has a negative impact on venture performance. If a large portion of value remains unrealized at year ten, then the internal rate of return (IRR) must blend actual distributions with valuation forecasts. As liquidity horizons lengthen, unless unrealized portions appreciate at an exceptionally rapid rate, these metrics tend to drift downward.

This downward drift is systemic, more pronounced in venture capital than in private equity (PE), and has become increasingly evident in recent years, especially in funds with the most inflated NAVs in later years.

“Investors evaluating managers (especially venture capital managers) should expect that when a large portion of value remains in NAV, IRR will be significantly compressed, even if current interim IRRs look strong… These findings challenge the practice of using the ten-year fund structure and interim performance metrics as reliable guides for exit timing, risk, and performance in private equity.”

So, if the ten-year structure has become functionally obsolete, why does the industry still use it?

Parkinson’s Law

Practitioners have long been vaguely aware of the extension of fund durations. In some ways, this echoes Parkinson’s Law:

“Work expands to fill the time available.”

In the context of venture capital, this can be restated as:

“Funds automatically expand to absorb all available capital under management.”

This reflects a shift in goal: from a fiduciary duty to deliver optimal performance, to a service relationship managing large pools of capital to satisfy a vast LP base that needs to label their allocations as “venture capital.”

Thus, Silicon Valley Bank’s (SVB) “Mid-2026 Market Conditions Report” describes a venture capital market now split into two largely independent industries, even though they still operate within the same distribution pool. One is dominated by mega-funds leading large growth rounds; the other is a shrinking, self-reliant group of early-stage investors. In 2025, 33% of all U.S. venture capital funding went to the top 1% of companies by valuation, up from just 12% in 2022. The share of the market captured by “mega-funds” with over $500 million in funding far exceeded the peak in 2021.

“Mid-2026 Market Conditions Report”

Within this distorted market, fund extensions have become routine for LPs. Top-tier funds often take 16 to 20 years to fully return capital. Many funds from 2010 to 2015 remain active, with substantial unrealized NAV on their books.

The traditional “harvest period” has been replaced by an “extended growth phase,” creating space for downstream capital from larger funds. Companies in modern portfolios often continue to scale well beyond the ten-year mark, with astonishing expansion.

Therefore, the controversy is not about capital being trapped or producing no output, but about the extension of investment horizons beyond LPs’ original expectations, casting doubt on ultimate performance.

Paper Tigers

If the ten-year structure is detached from the realities of venture capital, why hasn’t it been replaced? The answer is that it still performs several functions unrelated to actual fund outcomes.

LPs compare funds by vintage year and use these benchmarks for portfolio construction decisions. Pension funds, endowments, and sovereign wealth funds’ cash flow models are built around predictable distribution schedules. Even if underlying funds routinely break these schedules, these timelines create a standardized illusion that makes comparisons possible.

The ten-year fund is also easy for boards, trustees, and anyone needing to explain these assets to non-professionals. An indefinite-term investment vehicle would seem more uncertain and harder to justify, even if closer to the truth. The industry continues to write ten-year LPAs partly because changing them is painful and would trigger many other thorny issues.

Follow-on funds are typically raised three to four years after the previous fund closes, based on the implicit assumption that, as new vehicles begin investing, the prior fund will be approaching an early distribution phase. But when the previous fund holds a large unrealized NAV beyond its scheduled end date, awkward overlaps occur. GPs ask LPs to evaluate based on interim performance metrics, which, as Bartlett and Ramella show, are mechanically inflated by these unrealized positions.

Normalization of Deviance

“Normalization of deviance is a term first introduced by sociologist Diane Vaughan in her review of the Challenger space shuttle disaster. Vaughan pointed out that the root cause was NASA officials repeatedly choosing to fly the shuttle despite known dangerous flaws in the O-rings. She described this phenomenon as: organizational insensitivity to abnormal behavior, to the point where it no longer seemed wrong. This insensitivity is insidious, often persisting for years, until other critical factors align to trigger disaster.”

– “When Mistakes Feel So Right: Normalization of Deviance,” by Mary R. Price and Teresa C. Williams

Maintaining this status quo benefits the most profitable managers, but it comes at a cost.

First, the relationship between GPs and LPs begins with a lie: it’s not a good precedent. If both sides do not expect a ten-year fund but sign a contract explicitly acknowledging that structure, it raises questions about whether other contractual obligations are also treated as “rough guidelines.”

The persistent presence of unrealized positions alongside subsequent fundraises strains LP models. GPs manage both old assets and new vehicles, leveraging overlapping resources, reporting overlapping metrics, and benefiting from overlapping management fees.

Another concern is the so-called “Re-risking Trap.” Mega-funds with billions of dry powder push companies toward larger, higher-valuation financings, betting on power-law returns that can sustain their scale. This mode keeps risk elevated far longer than traditional venture curves. A company that could have been profitable with a $200 million early exit is now forced into Series E funding to chase a billion-dollar outcome, because anything smaller has negligible impact for a $5 billion fund. Mid-sized managers, who could have exited profitably at lower thresholds, are also caught in this long-term game, despite their different economic models, ownership stakes, and investor expectations.

Perpetual Capital

“Ironically, the venture capital industry’s innovation has not kept pace with the companies we serve. Our industry remains stuck in the rigid ten-year fund cycle pioneered in the 1970s. As chips shrink and software moves to the cloud, venture capital still relies on the ‘floppy disk’ of the business world. Once, the ten-year cycle made sense, but its underlying assumptions no longer hold, leading to premature disconnections and misalignments between companies and their investors.”

— Roelof Botha, Sequoia Capital

Sequoia’s 2021 restructuring was the most explicit market acknowledgment that ten-year funds have become liabilities. Moving to an open-ended structure, Sequoia can hold post-IPO positions indefinitely, using internal recycling rather than periodic LP commitments for new investments, and offering semi-annual redemption rights instead of fixed distributions. This model resembles a hedge fund layered onto a venture capital franchise, made feasible because Sequoia’s past performance allows it to innovate without alarming LPs.

Other large firms have followed suit. Andreessen Horowitz and General Catalyst register as Registered Investment Advisors (RIAs), expanding their flexibility to hold public securities and pursue non-traditional asset classes. In practice, the architecture of these mega-funds has abandoned the ten-year horizon. The residual of LPAs is just a “degraded organ” kept for tradition and regulatory familiarity.

During the boom years from 2015 to 2022, the largest investors in venture capital were sovereign wealth funds, pension funds, family offices, and crossover funds—all operating with indefinite or very long horizons. These capital flows into mega-funds, which deploy into high-valuation financings. Companies receiving these funds have little incentive to go public quickly and are better positioned to expand privately. The ten-year framework designed for small funds and quick exits can no longer support this market that has outgrown it.

The logical response for such large institutions is the Sequoia model: perpetual capital, open-ended structures, and infinite horizons, aligned with the underlying economics of power-law winners and their continuous compounding.

Agile Capital

The same logic does not apply to small funds, where the opposite trend has emerged: a traditional ten-year fund can be advantageous.

This is partly about the “law of large numbers,” partly about “ownership stakes.” A small early-stage fund with moderate valuations can turn a single outsized exit into enough to recoup the entire fund, something a large fund cannot do. To generate meaningful returns from a $1 billion fund, managers need to create $3 billion or more in realized value—requiring many big outcomes or a truly astronomical result. Mathematical pressures push large funds into the “re-risking trap,” while small funds are disciplined enough to produce some of the best historical venture returns.

Guanrou Deng and colleagues’ 2025 paper in the European Journal of Finance clarifies this. Using a calibrated sequence investment allocation model based on PitchBook’s late-stage VC data, they derive the relationship between portfolio returns and investment horizon length. The result is an S-shaped curve.

“Optimizing Investment Horizons and Strategies for Staged Venture Capital Portfolios,” by Guanrou Deng, Maurizio Fiaschetti, Piero Mazzarisi & Francesca Medda

“The optimal returns are achieved when VC funds terminate around 10 years… Beyond 10 years, the curve flattens, and returns may even decline, indicating diminishing gains from holding investments too long… Our conclusion that a 10-year investment horizon remains valid for general VC funds is supported.”

In their model, years 1–4 are flat, with the portfolio in early build-up. Years 4–10 generate most of the return growth as companies mature and successful exits compound. After ten years, the curve flattens and may decline. Holding longer does not reliably produce additional returns and mechanically reduces IRR through Bartlett and Ramella’s observed time value decay.

The peak occurs between years 8 and 10, consistent with the average exit timing of successful VC companies in PitchBook’s sample and pre-Internet bubble IPO trends. For a disciplined, well-managed small fund with clear insight into timing, a ten-year horizon appears to be an ideal target.

The Baton

If small funds are to deliver liquidity within a ten-year window, the question becomes how to convert paper gains into cash within that timeframe.

One long-term answer is for small funds to actively guide portfolio companies toward IPOs more quickly. This involves trading off top-line growth (and superficial valuation increases) against stronger economic fundamentals, cultivating companies with high capital efficiency, rational valuations, and readiness for public scrutiny.

A shorter-term answer is the secondary market. Darian Ibrahim’s 2012 Vanderbilt Law Review paper laid out the foundational case for this, long before the current liquidity crisis.

“The secondary market provides a new liquidity pathway for initial investors, offers buyers access to previously inaccessible asset classes, and brings governance benefits to the transaction companies. These benefits in venture capital should lead to a net increase in entrepreneurial activity. Given the surplus created by entrepreneurial activity, the VC secondary market should be a subject of academic research and policy encouragement.”

— “New Exit Strategies in Venture Capital,” by Darian M. Ibrahim

Ibrahim observed that the direct trading market for private startup shares was already functioning as a “pressure release valve” before the current cycle. Later-stage VCs often buy preferred stock from early-stage VCs in larger financings. One respondent estimated that 60–70% of late-stage financings include secondary components. Early investors gain some liquidity, companies stay private, and later capital can enter without being constrained by early fund maturities.

The elegance of this relationship lies in aligning each participant’s natural timeline with the stage of the company lifecycle they are best suited to underwrite. Early funds bring differentiated appetite, qualitative expertise, and valuation discipline at seed and Series A. Later funds bring scale, quantitative skills, and patience through long pre-IPO windows. Series C or D secondary trades are natural meeting points, with both sides seemingly benefiting.

For a small fund operating within a ten-year horizon, the lesson is straightforward: focus on early stages where pricing advantages are real, consider reserving follow-on capital through Series B, and view Series C or D secondary sales as default points for partial or full exits to multi-stage and crossover investors.

“Venture Capital Outlook 2026: 5 Key Trends”

The secondary market is no longer the fringe market Ibrahim described in 2012. Wellington estimates that by 2025, the VC secondary market reached about $160 billion and is poised to become a mainstream liquidity tool. The conditions Ibrahim foresaw are now mature, despite ongoing issues around transparency and efficiency.

Collective Conservatism

“We hypothesize that venture capitalists and their investors often fall into what we call ‘collective conservatism.’ We investigate this hypothesis by analyzing standard terms in LPAs. When investors accept suboptimal standard terms, it’s not because they believe these terms align their interests with fund managers, but simply because they think their peers (including competitors) are more likely to include those terms.”

– “Conservatism and Innovation in Venture Capital Contracts,” by Joseph A. McCahery and Erik P. M. Vermeulen

The strangest feature of today’s venture capital market is that, despite such clear signs of divergence, it still offers a single standard fund product. Capital has stratified, strategies have stratified, exit patterns have stratified, and underlying companies have stratified. Due to enormous inertia, fund structures remain on paper unchanged, even as market realities have diverged sharply.

This can largely be explained by VC firms’ reluctance to propose innovative concepts to LPs and risk rejection. In fact, the way VC mimics LP expectations in structuring and strategizing bears a clear resemblance to the “catering” phenomenon in GP-founder relationships, likely producing similar negative effects on performance. Yet, as LPs grow increasingly uneasy with market realities, opportunities for change are emerging.

Bartlett and Ramella’s arguments are detailed, with data tracing fund-level results all the way to individual portfolio exits. But their conclusion does not call for abolishing the ten-year structure. Instead, they emphasize that it is no longer a reliable industry standard; performance assessment, fund design, and LP expectations need to be re-evaluated accordingly.

Embracing Divergence

What the industry now needs is a differentiated fund product aligned with the fractured market realities and LP demands.

“Mid-2026 Market Conditions Report”

Mega-funds and platform managers with the scale, brand, and track record to demand perpetual capital should follow Sequoia’s lead. They support companies that stay private longer, grow larger, and justify extended holding periods. In this context, the ten-year structure has become a fiction; honest practice involves moving toward more rational arrangements.

Small funds should go in the opposite direction. They should leverage the discipline of a ten-year horizon as a competitive advantage, making it a clear selling point to LPs. These funds should aim for full or near-full exits by year ten, focus on early-stage investments with structural ownership advantages, and treat Series C or D secondary sales as default points for partial or complete exits to larger investors.

The revival of the ten-year cycle for small funds aligns with Bartlett and Ramella’s findings of structural breakdown: the modern private market creates more value in fewer companies, at a slower pace. This logic supports ultra-long horizons for top-tier, power-law winners; it also supports disciplined early-stage investing, where capital efficiency and risk management are most critical.

LPs also face the need to clarify their strategies. As annual payout obligations grow, endowments and pension funds are questioning whether the “infinite horizon” embedded in mega-funds aligns with their cash flow needs. A small fund designed to deliver real liquidity within ten years is becoming an increasingly attractive proposition.

In sum, the ten-year fund has been disappearing amid a period of “capital indigestion” in venture capital. Now that this problem is addressed through targeted strategic differentiation, there is an opportunity to bring it back.

Essentially, for small and emerging managers, the opportunity is to finally fulfill a promise that the venture capital industry has neglected for over a decade.