The Evolution of Venture Capital

Welcome to another edition of First AI Movers Pro! Today, we will explore the Evolution of Venture Capital: from startup investors to Transformation Engines.

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Venture capital is undergoing a quiet revolution. Top VC firms that once stuck to funding startups are now reinventing themselves as multi-asset powerhouses. In this feature, we explore how Andreessen Horowitz, Sequoia Capital, General Catalyst, Thrive Capital, Lightspeed, and others are morphing from traditional startup investors into “transformation engines.” From registering as RIAs and launching evergreen funds, to dabbling in buyouts, permanent capital vehicles, secondary markets, and even acquiring entire companies, these firms are breaking the old VC mold. What’s driving this shift? A mix of market forces (startups staying private longer, scarce IPOs), regulatory leeway, and the massive opportunities (and challenges) of the AI era. Buckle up for an in-depth look at the new face of venture capital, complete with recent examples and the forces at play.

The venture capital industry is fundamentally changing. High valuations and low liquidity in recent years have left many VC firms with huge funds but fewer exit opportunities. Rather than wait a decade for IPOs that may never come, elite VCs are adopting tactics once reserved for private equity. They’re launching new investment structures, buying companies outright, and rolling up businesses to create value beyond just writing startup checks. In short, venture capital is starting to look a lot more like a multi-asset private equity-style operation – albeit one fueled by technology and long-term “transformation,” not just financial engineering.

A key enabler of this shift is regulatory. Several top firms have registered as investment advisers (RIAs), freeing themselves from the old rules that constrained traditional VC funds. For example, Lightspeed Venture Partners, managing $31B, completed its RIA registration this year. This move – echoed by peers like Sequoia, Andreessen Horowitz, and General Catalyst – liberates them to deploy capital beyond private startups. As an RIA, Lightspeed can now buy public stocks, invest in secondary shares, do buyouts, and pursue roll-up acquisitions in a way not possible under a standard VC fund.

They’re not alone. Andreessen Horowitz (a16z) took the RIA plunge back in 2019. Since then, a16z has massively expanded its scope – launching a crypto fund, a wealth management division, even joining Elon Musk’s buyout of Twitter in 2022 (a very non-VC move). In fact, a16z has been behaving more like a governance-heavy PE firm than a classic venture investor, with active involvement in company operations and broad asset allocations.

Meanwhile, Sequoia Capital made waves by killing the 10-year fund cycle entirely. In 2021, Sequoia restructured its U.S. & Europe business around a single evergreen fund – the Sequoia Capital Fund – instead of traditional closed-end funds. This permanent fund holds public stocks of its portfolio companies and recycles gains into new ventures, effectively abolishing “expiration dates” on investments. Sequoia’s bold shift means it can back founders indefinitely, hold onto winners well after IPO, and deploy capital on a much longer timeline than before. The firm bluntly declared the 1970s-era 10-year VC model “obsolete” as startups now “compound their value for decades” beyond an IPO.

Beyond new fund structures, leading VCs are directly buying or building companies – something traditionally done by corporates or buyout firms. Perhaps the most striking example is General Catalyst. Once known for early-stage tech bets, General Catalyst has rebranded itself around “health assurance transformation,” going so far as to acquire an entire hospital system. Through a special vehicle called HATCo (Health Assurance Transformation Corp.), GC signed a $485 million deal to buy Summa Health, a large Ohio-based hospital network. This is not a typical VC deal at all – it’s a full buyout where the nonprofit hospital will become a for-profit, wholly owned subsidiary of GC’s platform. General Catalyst’s plan is to inject $350M in tech upgrades and $200M in strategic investments into the hospital over several years, aiming to transform healthcare delivery with AI and digital tools. The firm no longer even calls itself a VC; its CEO Hemant Taneja positions General Catalyst as a “Transformation Company” driving systemic change.

Thrive Capital – the New York VC led by Joshua Kushner – is also embracing the role of operator. Thrive recently set up Thrive Holdings, a $1 billion permanent capital vehicle dedicated to “investing in, acquiring and operating businesses for the long-term”. The mission of this new arm is to transform companies through strategic technology, including AI. In other words, Thrive isn’t just funding startups; it’s building an in-house portfolio of established companies that it can modernize and scale over an indefinite time horizon. Not just investing – operating, as one analyst put it. Thrive Holdings is explicitly designed to start or buy companies and hold them indefinitely, with AI as a key value driver. This mirrors a trend of VC firms creating their own “mini-conglomerates” to capture more value over the long run.

Even Sequoia and a16z have dipped into this approach. Sequoia’s permanent fund structure means it can acquire more shares in later-stage rounds or in secondary markets and hold onto public equities instead of exiting. Andreessen Horowitz has been incubating companies internally and reportedly even exploring a private equity-style fund for growth deals. By raising a colossal $20 billion “mega fund” aimed at AI investments, a16z is testing how far a venture firm can scale up. Such scale inevitably pushes them toward larger, more mature deals (sometimes outright acquisitions) to deploy that capital. In fact, industry observers note that these mega-funds blur the line between late-stage venture and traditional buyouts, forcing VCs to evolve their playbooks.

Another facet of this evolution is engagement with the secondary market for private equity. As startups stay private 10+ years, VCs and founders seek liquidity through secondary share sales. RIA status allows firms like Lightspeed and a16z to freely trade pre-IPO shares or even set up continuation funds to hold stakes longer. Lightspeed reportedly launched a multi-asset continuation fund (valued at around $1B) to give its investors the choice to cash out or stay in certain late-stage winners. By facilitating secondary transactions and buying shares from earlier investors or employees, these firms keep skin in the game of top companies while providing liquidity, effectively acting like a secondary-market dealer alongside being a primary investor.

Additionally, the biggest VCs have created wealth management arms to deepen relationships with founders and LPs. Andreessen Horowitz’s new wealth management division aims to manage the fortunes of tech founders it has backed. This not only diversifies a16z’s revenue (with advisory fees) but also locks in an ecosystem: successful entrepreneurs can keep their wealth under the same umbrella, which might then invest in the next generation of startups. It’s a virtuous cycle – and another way venture firms are extending their reach far beyond early-stage investing.

What’s behind this grand makeover of venture capital? Several converging forces: