VCs are rejecting paper gains. Demanding cash. Here's why.

☕ Thursday, March 5, 2026

Good morning.

Secondaries hit $160B. IPOs are back. And VCs just learned a hard lesson.

Private markets are healing.

After 3 years of drought, liquidity is finally flowing again.

The numbers:

• Secondary market: $160B (2025) vs $103B (2024) = +55%

• IPO activity: 60 US IPOs in Q3 2025 (biggest since 2021)

• M&A volume: Up 40% year-over-year

What changed: Interest rates. Fed cut 3 times in 2025. More cuts expected in 2026.

Why this matters: The 2021 vintage funds that have been stuck for 4 years are finally getting liquidity.

Read time: 4 minutes

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Top 3 Stories This Week

1. VCs Are Demanding Cash, Not Paper Gains

What happened:

Limited partners (LPs) are rejecting "continuation vehicles" — where GPs roll investments into new funds instead of returning cash.

The data:

20% of all 2026 distributions will be continuation vehicles (CVs).

When given the option, LPs are choosing "sell" over "roll" at 80%+ rates.

Translation: "Show me the money, not another fund."

Why this is happening:

2021 valuations looked great on paper. Then 2022-2024 crashed them.

LPs learned: IRR (paper gains) ≠ DPI (actual cash returned).

The shift:

Before: "Our fund has a 45% IRR!" (impressive on paper)

Now: "What's your DPI?" (how much cash did you actually return?)

What this means for you:

When evaluating investments, ask:

• ✅ "What's the path to liquidity?"

• ✅ "When do I actually get cash?"

• ✅ "Is this based on real transactions or paper marks?"

2. AI Funding Concentration Reaches Extreme Levels

The numbers:

US accounted for:

• 85% of global AI funding

• 53% of AI deals

• 4 of the 7 largest AI rounds globally

But here's the problem:

Only companies with "the strongest competitive positions" are getting funded outside of AI.

What VCs are saying:

"AI wrappers are dead. Infrastructure and vertical workflows are what matter now." — Multiple top-tier VCs

The pattern:

Sectors getting funded:

• ✅ AI infrastructure (chips, compute, platforms)

• ✅ Defense tech (geopolitical tensions)

• ✅ Healthcare AI (provider margin pressure)

• ✅ Cybersecurity (digital identity, fraud detection)

Sectors struggling:

• ✗ Consumer AI apps (commoditized by foundation models)

• ✗ Horizontal SaaS without AI moat

• ✗ Crypto (down 13% YoY in Feb)

Recent examples:

Wayve (UK): $1.2B Series D for autonomous driving
Backers: Mercedes, Stellantis
Why it worked: Real partnerships with automakers, deployed tech

MatX (US): $500M for AI chips
Why it worked: 10x performance vs GPUs, breaks Nvidia monopoly

The lesson: Infrastructure beats applications. Real tech beats wrappers.

3. Secondary Markets Are Becoming Mainstream

The stat:

Only 2% of unicorn market value trades on secondary markets.

For context:

That's massively underpenetrated compared to other asset classes.

What's changing in 2026:

Secondary transactions are becoming a "core liquidity tool" for VCs, not a last resort.

Why:

Hold periods are extending. Average time from Series A to IPO: 8-10 years now vs 4-6 years in 2010s.

Companies stay private longer = investors need liquidity before IPO.

How secondaries work:

Example:

You invested in Stripe Series C in 2018 at $20B valuation.

2026: Stripe is worth $70B but still private.

Secondary buyer offers you $60B valuation (15% discount).

You sell 50% of position → Lock in 3x gain → Hold other 50% for IPO.

Real deals this week:

Tabby (UAE): $160M Series E at $4.5B (secondary component)
Bending Spoons (Italy): $170M at $11B (partial secondary)
Plaid (US): Employee liquidity round at $8B

Why this matters:

If you're holding late-stage private investments, secondary markets give you an exit BEFORE IPO.

QUICK HITS

💰 Pilot launches $250K Growth Fund
Non-dilutive capital for startups. No equity given up. Revenue-based repayment.

🚗 Wayve (autonomous driving) raises $1.2B
Mercedes + Stellantis backed. Launching commercial deployments 2026-2027.

💳 ID.me (digital identity) hits $2B valuation
$300M+ round. Cybersecurity is the new infrastructure play.

🇧🇷 Latin America exits heating up
Conta Azul acquired for $300M by Visma. Contabilizei secondary at $125M.

📉 Crypto funding down 13% YoY
$883M raised in Feb 2026 vs $1.02B in Feb 2025. VCs want revenue, not speculation.

WHAT WE'RE WATCHING

Late March: Starship test flight
If successful: Opens $500B+ in new space markets
If fails: $1.5T SpaceX IPO becomes $800B-1T

April-May: OpenAI IPO rumors
Reports of $750B-830B valuation target

Q2 2026: Fed rate decisions
More cuts = more M&A activity = more liquidity for private markets

THE PATTERN NOBODY'S TALKING ABOUT

Here's what's actually happening in private markets:

1. Concentration at the top

5% of startups get 80% of funding (Pareto's Law in action).

2. Quality over quantity

Investors prioritize:

• Strong unit economics

• Actual revenue (not just growth)

• Defensible moats

3. Liquidity is king

LPs want cash distributions, not paper gains.

Secondaries are becoming essential, not optional.

4. AI infrastructure > AI applications

Apps get commoditized. Infrastructure compounds.

The 2026 playbook:

If you're investing:

• ✅ Focus on late-stage companies with real revenue

• ✅ Ask about liquidity paths (secondary markets, IPO timeline)

• ✅ Demand DPI data, not just IRR

• ✅ Prioritize infrastructure over applications

If you're building:

• ✅ Unit economics matter more than growth rate

• ✅ Revenue beats valuation

• ✅ Infrastructure > wrapper

BY THE NUMBERS

$160B — Secondary market transactions (2025)
85% — US share of global AI funding
20% — Continuation vehicles as % of 2026 distributions
8-10 years — Average time from Series A to IPO (2026)
2% — Unicorn market value traded on secondaries (massively underpenetrated)

WHAT THIS MEANS FOR YOU

If you invest in private markets:

The game has changed. Paper gains don't count anymore.

3 questions to ask on every deal:

1. What's the path to liquidity? (IPO, M&A, secondary?)

2. What's the DPI of this fund/manager? (actual cash returned)

3. Does this have real revenue and unit economics?

If you're sitting on private investments:

Secondary markets are your friend. Don't wait for IPO if you want liquidity now.

If you're tracking the market:

Watch for:

• More IPOs in Q2-Q3 2026 (window is opening)

• Secondary pricing to tighten (early movers win)

• AI infrastructure continues to dominate

ONE THING TO REMEMBER

The 2021 era is officially over.

Easy money: gone
Growth-at-all-costs: dead
Paper valuations: don't matter

The new reality:

Revenue, unit economics, and actual cash distributions are what count.

If you can't adapt to this, 2026 will be painful.

If you can, there's never been a better time to invest in quality private companies.

Alberto

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WHAT WE'RE READING

Wellington Management: 2026 VC Outlook
Cambridge Associates: Private Equity Views
Crunchbase: Top VC Predictions for 2026