Venture Capital's Dirty Secret Exposed: Early-Stage Performance Charts Reveal Three Crushing Vintage Regimes

The Uneven Decade: Unpacking Venture Capital's Three Vintage Regimes

The decade spanning the mid-2010s to the mid-2020s in venture capital was often discussed as a period of continuous, upward growth. However, a sharp, data-driven revelation suggests this narrative is fundamentally flawed. Performance metrics, when properly segmented by the year a fund began investing—its "vintage"—reveal not a smooth upward trajectory, but three distinctly separate and powerfully shaped vintage regimes. This segmentation implies that for many investors, the recent volatility isn't just market noise; it’s the result of being caught in the wrong part of a macro-driven cycle.

This crucial insight stems from early data analysis preceding AngelList's comprehensive 2025 Fund Benchmarks Report, a finding amplified by @yoheinakajima on February 13, 2026 · 8:44 PM UTC. The quoted assessment noted, "This chart explains a lot of quiet tension in venture right now." The significance of this finding cannot be overstated: it shifts the primary explanatory variable for performance dispersion away from simply good vs. bad managers and squarely onto overwhelming external economic forces.

The overarching thesis emerging from this tripartite division is stark: these regimes are primarily driven by external macro forces, particularly interest rates and overall liquidity. Therefore, the intense performance anxiety gripping the industry today is not necessarily a universal deficit in manager skill, but rather the inevitable collision between market euphoria and subsequent, severe economic correction cycles.

Regime I: The Peak Bubble Vintage (e.g., 2016-2018/19)

The first era identified is characterized by the zenith of late-stage private market expansion, often spanning the years 2016 through 2018 or 2019, depending on the precise cutoff. This period was defined by an intoxicating mixture of low interest rates and robust public market enthusiasm for tech growth.

Characteristics of Euphoria

Funds deploying capital during this window benefited from extraordinarily high entry valuations—often justified by hyperbolic growth narratives—and a seemingly endless abundance of capital. Exits, both via IPO and M&A, were achieved at inflated multiple levels, fueled by aggressive crossover investors.

Performance Outcome: The Artificial High Bar

Naturally, this environment led to what are likely the highest observed net returns across the decade for these specific vintages. The performance metrics were inflated by easy money and pervasive market euphoria, inadvertently setting an artificially high, and likely unsustainable, performance bar against which all subsequent vintages would inevitably be measured—and consequently, found wanting.

Regime II: The Pandemic Hype Cycle (e.g., 2020-2021)

The second, and perhaps most volatile, regime encompasses the deployment period triggered by the global pandemic response, mainly 2020 and 2021. This era saw an unprecedented surge in available dry powder chasing fewer perceived quality deals.

Hyper-Acceleration and FOMO

Zero-interest-rate policies (ZIRP) flooded the system with liquidity, dramatically accelerating deployment speeds. This period saw a massive influx of retail and crossover capital flooding into late-stage private rounds. The overriding sentiment was Fear of Missing Out (FOMO), leading VCs to deploy capital faster than ever before, often marking up valuations simply to win competitive deals.

Performance Implications: Valuation Whiplash

While initial deployment speed was record-breaking, the long-term performance implications are concerning. These portfolios purchased assets at valuations that were aggressively stretched, based on optimistic future projections that did not account for the subsequent, sharp macroeconomic reset. The collision between these inflated private valuations and the inevitable public market correction suggests these funds face significant hurdles on the way to realization.

Regime III: The Correction and Scarcity Vintage (e.g., 2022-Present)

The third regime, which begins around 2022, reflects the immediate and sharp response to inflation control measures, resulting in a fundamental repricing of risk across all asset classes.

Disciplined Deployment in a Scarce Market

The defining feature of this vintage is the rapid rise in the cost of capital. Higher hurdle rates forced a "flight to quality," meaning only the truly exceptional deals were funded, and often at substantially lower nominal or adjusted valuations than two years prior. This environment mandated forced discipline, slower deployment pace, and significant near-term markdowns as GPs reconciled existing paper valuations with new market realities.

Manager Behavior Under Pressure

GPs raising funds in 2022 and 2023 found themselves operating under intense scrutiny. Deployment required much deeper diligence, and the "easy buttons" of previous years vanished. This required a return to foundational venture building, but the current IRR figures are necessarily depressed due to the conservative valuation practices mandated by the new economic climate.

The Hurdle Rate Challenge

These recent vintages face the toughest hurdle rates to achieve the median returns realized by the 2016-2018 funds. This structural difficulty is the source of much of the "quiet tension" currently acknowledged across the investment community—the realization that achieving 'great' performance means achieving something far better than the recent structural median.

The Macro Over Manager Thesis

This segmentation strongly advocates for a macro-driven explanation for the observed performance dispersion, minimizing the role of idiosyncratic manager skill in explaining the gap between the regimes.

Macro as the Primary Variable

When comparing the average expected return profile of a 2017 vintage fund versus a 2021 vintage fund, the explanatory power of interest rates, public market sentiment, and overall system liquidity dwarfs the differences between two similarly skilled General Partners operating within those respective environments. Macro conditions dictated the price of entry and the multiples at exit for the entire cohort.

Deconstructing Manager Skill

It remains true that within Regime II (2021), a superstar GP might significantly outperform a median GP, just as a poor manager might significantly underperform the median. However, the crucial counter-argument dismissal holds: while variance within a regime is skill-dependent, the massive, structural gap between Regime I's peak and Regime III's floor is overwhelmingly structural, a function of monetary policy shifts.

Implications for Limited Partners (LPs) and Future Fundraising

This vintage segmentation has immediate and tangible consequences for how investors allocate capital and how fund managers justify their existence.

LP Anxiety and Comparison Traps

LPs who committed significant capital into the 2021 vintage funds are understandably nervous now. They are observing paper valuations that appear significantly depressed when contrasted against the mature, realized distributions they might be seeing from the well-aged 2017 vintages. The emotional dissonance arises from comparing current paper marks (Regime II) against historical successes (Regime I) instead of against the appropriate contemporary benchmark (Regime III).

GP Challenges in the Current Cycle

General Partners who closed funds in 2022 or 2023 are facing the toughest fundraising environment for their successors. If the median performance for their vintage is structurally constrained by high hurdle rates, justifying the next fund’s 2 and 20 fee structure becomes exponentially harder when LPs can point to median performance lagging historical peaks by a structural margin.

A Call for Vintage-Specific Benchmarking

The critical takeaway for institutional investors is the need to abandon the smooth return curve assumption. Investors must radically recalibrate expectations and benchmark performance relative to the appropriate vintage cohort. Success in 2024 deployment should not be judged by the realized paper wealth generated by 2017 deployment; doing so guarantees a cycle of misplaced frustration and poor capital allocation decisions.

Source: https://x.com/yoheinakajima/status/2022411604655243489