It’s ‘liquidity, stupid’: VCs say tech investing is tough amid IPO lull and ‘nuts’ AI hype

LISBON, Portugal — It’s a tough time for the venture capital industry right now as a dearth of blockbuster initial public offerings and M&A activity has sucked liquidity from the market, while buzzy artificial intelligence startups dominate attention.

At the Web Summit tech conference in Lisbon, two venture investors — whose portfolios include the likes of multibillion-dollar AI startups Databricks Anthropic and Groq — said things have become much more difficult as they’re unable to cash out of some of their long-term bets.

“In the U.S., when you talk about the presidential election, it’s the economy stupid. And in the VC world, it’s really all about liquidity stupid,” Edith Yeung, general partner at Race Capital, an early-stage VC firm based in Silicon Valley, said in a CNBC-moderated panel earlier this week.

Liquidity is the holy grail for VCs, startup founders and early employees as it gives them a chance to realize gains — or, if things turn south, losses — on their investments.

When a VC makes an equity investment and the value of their stake increases, it’s only a gain on paper. But when a startup IPOs or sells to another company, their equity stake gets converted into hard cash — enabling them to make new investments.

Yeung said the lack of IPOs over the last couple of years had created a “really tough” environment for venture capital.

At the same, however, there’s been a rush from investors to get into buzzy AI firms.

“What’s really crazy is in the last few years, OpenAI’s domination has really been determined by Big Techs, the Microsofts of the world,” said Yeung, referring to ChatGPT-creator OpenAI’s seismic $157 billion valuation. OpenAI is backed by Microsoft, which has made a multibillion-dollar investment in the firm.

Larry Aschebrook, founder and managing partner at late-stage VC firm G Squared, agreed that the hunt for liquidity is getting harder — even though the likes of OpenAI are seeing blockbuster funding rounds, which he called “a bit nuts.”

“You have funds and founders and employees searching for liquidity because the IPO market is not happening. And then you have funding rounds taking place of generational types of businesses,” Aschebrook said on the panel.

As important as these deals are, Aschebrook suggested they aren’t helping investors because even more money is getting tied up in illiquid, privately owned shares. G Squared itself an early backer of Anthropic, a foundational AI model startup competing with Microsoft-backed OpenAI.

Using a cooking analogy, Aschebrook suggested that venture capitalists are being starved of lucrative share sales which would lead to them realizing returns. “If you want to cook some dinner, you better sell some stock, ” he added.

Yeung and Aschebrook both said they’re excited about opportunities beyond artificial intelligence, such as cybersecurity, enterprise software and crypto.

At Race Capital, Yeung said she sees opportunities to make money from investments in sectors including enterprise and infrastructure — not necessarily always AI.

“The key thing for us is not thinking about what’s going to happen, not necessarily in terms of exit in two or three years, we’re really, really long term,” Yeung said.

“I think for 2025, if President [Donald] Trump can make a comeback, there’s a few other industries I think that are quite interesting. For sure, crypto is definitely making a comeback already.”

At G Squared, meanwhile, cybersecurity firm Wiz is a key portfolio investment that’s seen OpenAI-levels of growth, according to Aschebrook.

The startup, which turned down a $23 billion acquisition bid from Google, hit the $500 million annual recurring revenue (ARR) milestone just four years after it was founded.

Wiz is now looking to reach $1 billion of ARR in 2025, doubling from this year, Roy Reznik, the company’s co-founder and vice president of research and development, told CNBC last month.

“I think that there’s many logos … that aren’t in the press raising $5 billion in two weeks, that do well in our portfolios, that are the stars of tomorrow, today,” Aschebrook said.