The VC Problem

Why 7-10 year fund cycles structurally prevent infrastructure, and what replaces them

In 1983, the same year Richard Stallman launched GNU, venture capital was organizing itself around a specific time horizon. VC funds typically run 7 to 15 years, with most structured for a 10-year lifecycle. This seemed reasonable. Software companies could scale fast. Exits happened. The model worked.

Forty years later, that same time horizon is strangling the infrastructure we need most.

The problem isn't that VCs are greedy or short-sighted. The problem is structural. Only 7% of VC funds actually liquidate within their projected 10-year timeframe, with the median fund taking over 14 years to end. But even 14 years isn't long enough for real infrastructure. And the incentives built into the VC model actively punish anyone trying to build it.

The Math That Breaks Infrastructure

Here's how VC fund cycles work in practice. Funds build their baseline portfolio of companies within the first 1.5 to 3 years. After year four, there isn't enough time left in a 10-year fund to invest in very early-stage opportunities and see them through to exit.

This creates a hard ceiling. If you're building something that takes more than 6-7 years to mature, traditional VC won't touch it. Not because they don't believe in it, but because the fund structure doesn't permit it.

VCs charge management fees of 1-2% annually on committed capital throughout the 10-year lifespan. On a $100 million fund, that's $2 million per year in guaranteed income. A $1 billion fund generates $20 million annually just from management fees, regardless of performance.

This fee structure creates perverse incentives. VCs can become wealthy from management fees alone, even if portfolio companies never succeed. The focus shifts from "20% firms" that optimize for carry through successful exits to "2% firms" that optimize for raising ever-larger funds to maximize management fees.

For founders, this means something specific: VCs are chasing short-term milestones to satisfy LP scorecards, instead of focusing on the nonlinear, slow-burning nature of venture value creation. The prevailing VC logic is that missing out on the next Amazon is worse than funding 100 failures. But this logic only works for companies that can exit within the fund timeline.

What Gets Built, What Doesn't

The VC model excels at funding specific types of companies. Consumer apps that scale fast. SaaS businesses with predictable growth metrics. Marketplaces that hit network effects quickly. All things that can demonstrate traction, raise follow-on rounds, and exit within 7-10 years.

What doesn't get funded? Anything requiring patient capital. Deep tech that needs a decade of R&D. Infrastructure that requires years of regulatory approval. Hardware with long development cycles. Clean energy projects with 15-year payback periods. Medical devices that need lengthy clinical trials.

VCs are driven to invest in businesses with the greatest likelihood of securing additional equity rounds at higher valuations, not necessarily companies with the highest chances of success. The most successful companies by ROI are often capital-efficient businesses that don't need additional funding. But VCs can't mark those up for their LPs without subsequent funding rounds at higher valuations. Let's underscore that, VCs want to pump as much money as possible into businesses even if they don't need it to jack valuations.   

This creates a brutal filter. The companies most likely to build lasting infrastructure are the least likely to get funded. That's why most VC funded companies are hype. It's basically pump and dump.  

The Infrastructure Gap Nobody Talks About

McKinsey estimates that $3.3 trillion must be spent annually through 2030 just to support expected global rates of growth. We're not spending it. The gap isn't because we lack capital. U.S. public pension plans hold $4.2 trillion in assets, corporate pensions $1.5 trillion, life insurers $6.8 trillion. Sovereign wealth funds control hundreds of billions more.

The capital exists. The fund structures don't.

The average performance of private infrastructure funds is lower than buyout, venture capital, and real estate funds, with a public market equivalent of 0.93, indicating underperformance. Why? Because closed infrastructure funds incentivize investors to exit their best-performing assets quickly instead of collecting long-term stable dividend payments.

The problem is the same as with VC funds: time horizons. Infrastructure assets generate stable, long-term cash flows. But closed-end fund structures force exits at fixed dates regardless of whether it makes economic sense. The incentives are wrong.

What Actually Works: Patient Capital Structures

The alternative exists. It's just not called venture capital.

Sovereign Wealth Funds With close to $8.3 trillion in assets under management, sovereign wealth funds invested $65.9 billion through direct investments in 2020, doubling from $35.9 billion in 2019. SWFs benefit from having more "patient capital" than private equity funds, with longer investment horizons and more flexible strategies.

SWFs don't have 10-year fund cycles. They have permanent capital. They can hold infrastructure investments for decades. They can fund projects that won't generate returns for 15-20 years. The time horizon matches the actual investment timeline.

Pension Funds and Insurance Companies Cash flows from infrastructure assets are reasonably predictable, of long duration, somewhat indexed to inflation, and relatively uncorrelated with public equity markets, making them well-suited for pension plans and life insurers.

Many Canadian pension plans have adopted direct investment in infrastructure, with the Canada Pension Plan Investment Board even taking on development and operation of the Montreal light rail system. When your liabilities extend 30-40 years (pension obligations), matching them with 30-40 year infrastructure assets makes perfect sense.

Evergreen Funds Evergreen funds are private equity vehicles with no fixed end date, allowing investors and fund managers to focus on sustainable growth rather than short-term performance pressures.

Unlike traditional private equity funds which lock up capital for 10-12 years, evergreen funds continue indefinitely, allowing investors to enter and exit periodically. Evergreen structures allow fund managers to respond dynamically to market conditions instead of being forced to exit investments at a predetermined time.

The catch: evergreen funds are still emerging. In venture capital, there are around 200 disclosed evergreen or open-ended funds, mostly in the USA and UK investing in software. The structure exists but hasn't scaled broadly yet.

Long-Duration Closed-End Funds Large sponsors including Blackstone, Carlyle, CVC and KKR have established long-term vehicles with lifespans of 15 years and over to target deals that may take longer to release value.

These aren't evergreen, but they acknowledge the fundamental problem: 10 years isn't enough. If you extend fund life to 15-20 years, you can fund infrastructure that matures slowly. Longer-term funds are gaining traction with venture capital firms as startups stay private for longer.

The Incentive Design Problem

The challenge isn't just structure. It's incentives. Venture capitalists and founders traditionally had aligned incentives through big company exits, but this alignment has changed as VCs focus more on maximizing assets under management rather than solely relying on exits.

Most venture returns concentrate in years 7-15, yet pressure for early liquidity often forces GPs to exit before maximum value is realized. This creates a system optimized for the wrong thing: fast exits rather than building enduring value.

Patient capital structures solve this by removing exit pressure. Permanent capital doesn't mean investors are locked in forever; it allows for shorter liquidity windows while freeing managers from artificial exit deadlines.

The result? Investors gain more resilient risk-reward opportunities, and founders can focus on long-term growth without compromise. Management teams can optimize for product, customer, and culture rather than quarterly financial optics.

Why This Matters Now

The infrastructure deficit is getting worse. The rate at which technology evolves has never been more staggering, with technological breakthroughs and startup ideas achieving mass adoption within months rather than decades. But the competitive landscape could shift entirely within 24 months, yet venture fund cycles remain stuck at 10+ years.

We're simultaneously moving too fast and too slow. Consumer software cycles accelerate while infrastructure development languishes. We can build a viral app in months but can't fund the semiconductor fabs, energy infrastructure, or biotech R&D that requires patient capital.

The gap is visible everywhere. Open source maintainer burnout. Underfunded critical infrastructure. Clean energy projects that can't raise capital despite obvious need. Medical research stuck in the "valley of death" between academic grants and commercial viability.

These aren't funding problems. They're structure problems. The capital exists. The time horizons don't match.

What Needs to Change

The VC model isn't broken for what it was designed to do: fund fast-scaling software companies that can exit within a decade. It's broken for everything else.

We need parallel structures:

More sovereign wealth and pension fund direct investment These institutions have the capital and time horizons infrastructure requires. SWFs doubled direct investment to $65.9 billion in 2020, but that's still a fraction of available capital.

Scaled evergreen funds Evergreen funds enable GPs to raise capital on an ongoing basis and deploy it against opportunities without predefined timelines. The structure works but needs wider adoption beyond the current 200 or so funds.

Sector-specific long-duration funds Clean tech, biotech, and deep tech need 15-20 year funds as standard. Major sponsors have started creating these, but they remain exceptions rather than norms.

Policy changes enabling patient capital Korea's venture capital investment in ICT as a share of GDP was 0.26%, while Japan's was only 0.06%. Legitimate social purposes like job creation and economic diversification have driven Korea's support for entrepreneurial finance.

Governments can catalyze patient capital through policy. Sovereign funds can significantly contribute by directly investing in infrastructure, technology, and research, enhancing quality and accessibility.

The Open Source Connection

This connects directly to open source sustainability. The infrastructure problem and the maintainer burnout problem have the same root cause: time horizon mismatch.

Open source projects need multi-decade support. VC funds have 10-year horizons. Companies built on open source infrastructure profit immediately. Maintainers burn out after years of unpaid work.

The solution is the same: patient capital structures that match actual timelines. Evergreen vehicles are designed to free ambitious mission-led businesses from the constraints of traditional fund structures, acting as a permanent source of capital without requiring exits.

Imagine funding open source like infrastructure. Permanent capital vehicles that can support maintainers for decades. No artificial exit pressure. No need to constantly justify short-term returns. Just sustainable support for sustainable infrastructure.

The Path Forward

The VC model worked brilliantly for 40 years because it matched the timeline of software businesses. But we're now building things that take longer than 10 years to mature. The fund structure hasn't adapted.

Venture is at a true inflection point, undergoing fundamental misalignment that calls for deep rethinking of what the model means and where it's headed. The question isn't whether to abandon VC but how to build parallel structures for different time horizons.

Fast consumer software? Use traditional VC. Deep infrastructure? Use patient capital. The capital exists. The institutions managing it exist. What's missing is the structural innovation to match capital to timelines.

Forty years ago, the VC model emerged to fund a specific type of company. It succeeded spectacularly. Now we need new models for a different era. Not better VCs. Different structures entirely.

The companies that will define the next 40 years are being starved today because the fund cycles don't match their growth curves. We have trillions in capital and entrepreneurs ready to build. All we're missing is the bridge between them.

The problem isn't too little capital. It's capital structured for the wrong timelines.

This article is part of my series on open innovation

America's Innovation Engine is Choking on Its Own IP

An Open Innovation Blueprint: Lessons to learn from Bell Labs

From GNU to GitHub: The Open Source Proof

The VC Problem