Research

The numbers are sobering. According to research conducted by consultants analysing 17,000 funds that was cited at the Women’s Venture Capital Summit Europe 2025, 70% of venture funds have extended beyond their initial 10-year terms to give themselves additional time to return capital to limited partners. Other sources paint a worse picture.

This isn’t just a venture problem—buyout funds face similar challenges—but venture’s exposure to growth-stage companies funded at 2021 peak valuations makes the situation particularly acute.

The distribution drought has created a vicious cycle. LPs haven’t received meaningful cash returns in years, making them reluctant to commit to new funds. Without fresh capital, existing portfolio companies struggle to raise follow-on rounds, depressing valuations and making exits even more challenging. Meanwhile, GPs have a harder time raising funds given their low distributions from previous vintages.

“You cannot raise another fund when you do not have DPI or a very good track record,” explained one European fund manager, capturing the industry’s central challenge. DPI—distributions to paid-in capital—has become the metric that matters most, even as fund managers argue it’s an imperfect measure of long-term performance.

The pressure has forced creative solutions. Secondary transactions, once niche activities, have become essential tools in portfolio management and the ecosystem at large. Fund managers are actively encouraging portfolio companies to explore secondary sales, even if it means sacrificing potential upside. One LP noted seeing “lots of secondary transactions coming up now” as GPs scramble to generate distributions.

European managers face particular challenges in this environment. The conference highlighted how European companies consistently raise smaller rounds than their US counterparts, especially at later stages. By Series C and beyond, the funding gap becomes dramatic—US companies access multiples of the capital available to European firms.

This funding disparity isn’t about company quality. European companies often demonstrate superior capital efficiency, with several conference participants noting that European founders “achieve three times more with the same amount of capital.” But efficiency doesn’t solve the liquidity problem when exit markets remain constrained.

The IPO window, closed for nearly two years, shows signs of reopening. Conference attendees noted recent successful public offerings, including companies like ServiceTitan and others, as positive signals. But the IPO market remains selective, favoring larger, more mature companies over the mid-market businesses that comprise much of Europe’s venture ecosystem.

Strategic acquisitions offer another exit path, but consolidation activity remains subdued. European acquirers like SAP provide some exit opportunities, but the continent lacks the deep-pocketed strategic buyers that drive US venture returns. Conference discussions highlighted the need for more European growth equity funds and strategic acquirers to provide exit options.

The liquidity crisis is changing fund management strategies. Managers are allocating more capital to reserves, enabling them to support existing portfolio companies through difficult periods. Some funds are shifting toward later-stage investments with clearer paths to profitability and exit.

Portfolio construction is evolving too. The traditional venture model of backing 20-30 companies and expecting 2-3 big winners is giving way to more concentrated strategies focused on companies with demonstrable unit economics and shorter paths to exit. Risk management has become as important as return generation.

LPs are adapting their expectations and measurement frameworks. The conference revealed growing acceptance that venture funds may require 12-15 years to fully return capital, longer than the traditional 10-year model. Some LPs are focusing more on interim cash flows and portfolio milestones rather than ultimate fund returns.

The crisis has also accelerated innovation in fund structures. Perpetual funds, continuation vehicles, and other alternative structures offer ways to manage liquidity pressure while maintaining long-term investment horizons. These structures require different LP relationships and expectations but may better align with venture’s actual return patterns.

Climate and deep tech funds face particular liquidity challenges given their longer development timelines and capital requirements. However, several conference participants noted that the current crisis might benefit these sectors by reducing competition from growth funds and creating more realistic valuations.

The European venture community’s response has been notably collaborative. Rather than pure competition, funds are sharing deal intelligence, best practices, and even co-investment opportunities. This collaboration may be driven by necessity, but it’s creating a more supportive ecosystem for entrepreneurship and innovation.

Looking ahead, the liquidity crisis may ultimately strengthen European venture capital by forcing discipline around unit economics, exit planning, and portfolio management. Fund managers who navigate this period successfully will emerge with better operational practices and stronger LP relationships.

The crisis also highlights the need for deeper European capital markets. The conference discussions repeatedly returned to the lack of growth-stage capital and exit options for European companies. Addressing these structural gaps requires policy intervention and institutional development beyond venture capital itself.

The distribution pressure reshaping venture capital today may seem like a crisis, but it could prove to be a necessary correction. By forcing discipline around returns and exits, the current environment may create a more sustainable foundation for European venture capital’s next growth phase.