LPs Call AI Fund Pacing a 'Yellow Light' as Concentration Bets Stack Up

Venture funds that once raised on a two-and-a-half-year cycle are now returning to limited partners in just one year — and two of the investors who back those funds call the trend a "yellow light" that gives them "a little bit of heartburn."

Amit Bhatti of TrueBridge, a Chapel Hill firm focused solely on venture, and Beezer Clarkson of LGT Capital Partners, a Zurich-based diversified asset manager, laid out the state of the LP market in a recent interview. Their verdict: the AI boom is producing extraordinary paper gains and real revenue, but the machinery of venture — fund pacing, fund sizes, liquidity — is straining under the pressure.

Why is everyone piled into OpenAI and Anthropic?

Normally, LPs diversify across many firms to spread risk. Instead, nearly every major fund now holds positions in the same two companies, OpenAI and Anthropic, often within the same venture firm, in violation of the usual convention against conflicting investments. The LPs are not complaining.

"Venture has always been a power law business, so I actually view the concentration as a good thing," Bhatti said. "If we were getting to the maturity of one of our funds and there were still lots of tiny positions, something's gone wrong."

His older funds, aged ten-plus years, have consolidated into a few names: a lot of Databricks, a lot of SpaceX, a lot of Stripe. He expects the current generation to consolidate into Anthropic and OpenAI. "That's a feature, not a bug," he said — while conceding the speed is unprecedented and that "not every one of these companies is going to work out."

Clarkson noted the early stage still offers diversity, since seed funds write smaller checks and avoid late-stage rounds. The concentration, in other words, builds at the top of the stack, not the bottom.

Is the pacing of new funds dangerous?

Bhatti said 24 to 36 months between funds was roughly normal; now 12 to 18 months is common. Funds are also bumping up their fund sizes mid-cycle, which he called "definitely unusual." The mechanics are blunt: if a fund puts 20% of its capital into a giant Anthropic round, it deploys ahead of pace. Seed rounds have roughly doubled in size, so leading a round means writing a 2x check.

"It's definitely a yellow light," Bhatti said. "It gives us a little bit of heartburn."

His defense of what managers actually bought: the last acceleration cycle funded zero-revenue crypto moonshots, while today companies are going from zero to $100 million in revenue, a trajectory that was previously unheard of. Clarkson added that 2021-vintage funds, still only five years old, argue against one-year cycles — the odds of getting a single year right are simply tougher, and the entry valuations were extreme.

How do LPs say no without losing their seat?

Exiting a manager relationship and returning later is hard, both said. The more typical move is downsizing the check: in 2021, LPs told managers a planned $10 million commitment would become $5 million. Bhatti's firm builds a calendar of expected commitments and must ensure capital is available when a manager goes off map. Sitting out entirely carries a cost. "Then you're not reliable capital," he said.

Clarkson flagged another strain: institutions such as endowments, hospitals and foundations face continuing capital calls with no distributions returning, forcing some to rotate out of venture entirely.

Is liquidity finally flowing?

Bhatti said the past two years were slow, but exits have resumed: SpaceX is the headline, Cerebras was a big exit this year, and M&A now includes $10 billion-plus deals and a reported $60 billion transaction involving Cursor. OpenAI and Cursor also sit inside the much-maligned COVID-vintage funds, meaning a couple of breakouts will come from that cohort, even if Bhatti would not bet on it being the best of his last 15 years.

Secondaries have become the third leg of liquidity alongside IPOs and M&A, he said — once "a dirty word" associated with distress, now a standard tool. His rule: "If you can sell 20% of your position and return your fund, you should probably do it." Clarkson noted secondaries now happen at multiple levels, with LPs selling GP stakes or portfolio strips, and the taboo fading.

On early employee tenders, Bhatti drew a line: partial liquidity at long-established companies like Stripe and Databricks is reasonable, but lead investors are telling younger companies not to run tenders, conversations he said are happening behind the scenes — though everything depends on founder leverage.

Is there still room for emerging managers?

Yes, at smaller scale. Clarkson's floor is roughly a $5 million check, and she caps her stake at about 20% of a fund. Bhatti writes $3 million to $5 million, occasionally less, and will take half or all of a fund in the right scenario — as he did once, then cut to roughly 20% in the next fund after the manager performed.

First-time funds of $25 million to $50 million still aggregate into meaningful totals, and some well-known firms started with $5 million. Bhatti has backed founders still running companies, spinouts from larger firms, and GPs as young as 22 and 23 who ran an accelerator at MIT, Harvard and Stanford whose early batches included Cursor and Mercor. "Success begets success in venture," he said.

Clarkson, who has invested in emerging managers for 14 years, said LPs now tolerate operators who invest on the side, a practice once ruled out. The test, she said, is whether they win the right to sit on the best cap tables.