Welcome to the WC, where you’re trapped in my mind for eight to twelve minutes weekly.
Today we go way down the rabbit hole on venture capital. Is it a good place to put your money? Will you be happy with the results? Are we living in a simulation? Two thirds of these questions will be answered, and–depending on your perspective–you’re probably not going to like the results.
But it gives me an excuse to share this clip.
Let’s get to it.
Why do Altea members hate startups?
For the most part, Altea doesn’t bring startup deals to our community. We focus more on esoteric stuff like film finance, art, tequila, race horses, music royalties, and litigation finance. But every so often, we do bring something to the community if we think it’s an incredible opportunity. Without fail, the response is crickets. Like a Led Zepplin.
We’ve wondered internally why this is, and we settled on (a) our sophisticated community members have lots of access to startups elsewhere, and (b) we don’t usually have fantastic access to dealflow. But what if it’s something deeper? What if our community members think venture is just not a great asset class? So I dug into VC returns over the last five years, and…I think maybe this is it?
It’s been a wild five years for venture capital
Let’s start with 2021, which was supposed to be venture capital’s vindication year. VCs poured a staggering $330 billion into U.S. startups alone—double the previous year—while global venture funding exceeded $600 billion. The exit machine was humming: VC-backed companies generated $774 billion in exit value, shattering every previous record.
This wasn’t just good performance; it was a complete restructuring of how institutions thought about alternative asset allocation. Portfolio markups were astronomical, with TVPI ratios above 2x becoming common. VCs strutted into allocation meetings as the undisputed kings of alternative alpha generation, while traditional alternatives investors looked like relics clinging to their “boring” art collections and real estate.
The narrative was intoxicating:
“This is the new alternative, public markets are for losers, and so are old-school alternatives.”
Institutional investors rotated into VC, convinced they’d found the holy grail of alternative risk-adjusted returns. Tiger Global was doing deals in 15 minutes, valuations didn’t matter, and the hubris reached peak levels. The future belonged to venture capital, and everyone else was playing yesterday’s alternatives game.
Notable: this is when Alts raised its pre-seed round. Then 2022 happened, and reality delivered the kind of haymaker that leaves you wondering if you should have stayed in bed. VC exits didn’t just decline—they imploded.
VC-backed exit value crashed 90% from $774 billion to $71 billion. The Cambridge Associates VC benchmark went deeply negative while portfolio companies that had been marked to the moon suddenly faced the harsh reality of markdowns.
The IPO window didn’t just close; it was welded shut. Q4 2022 saw the lowest quarterly exit totals in a decade. While VC was busy proving it was just an expensive, illiquid version of growth stocks, genuine alternative investments held up remarkably well.
Fine art continued its steady appreciation, with blue-chip works maintaining value even as tech valuations cratered. Art doesn’t need IPO windows—its value derives from scarcity, cultural significance, and collector demand, not interest rate sensitivity.
Classic automobiles proved their alternative credentials, with vintage Porsches and rare Ferraris continuing to appreciate while VC portfolios got marked down. The Hagerty 500 Index, tracking collectible car values, demonstrated the kind of non-correlation that alternatives are supposed to provide.
Whiskey and spirits investments maintained their trajectory, with aged single malts and rare tequilas benefiting from supply constraints and growing global demand.
Music royalties provided steady cash flows throughout the turmoil, as streaming revenues continued regardless of macroeconomic conditions. David Bowie’s catalog didn’t need a Series C funding round—it just kept generating income.
Film finance demonstrated its appeal as content demand surged during economic uncertainty, while litigation finance offered returns uncorrelated to both tech valuations and broader market sentiment.
Meanwhile, VC was proving it offered none of the benefits that alternatives are supposed to provide. Instead of diversification, it provided concentration risk in private growth companies. Instead of non-correlation, it moved lockstep with public tech stocks (just with a delay and no liquidity). Instead of inflation protection, it suffered from the same interest rate sensitivity as long-duration growth assets. If 2022 was the shock, 2023 was the confirmation that this wasn’t just a bad year—it was a pattern.
While VC managed only a modest +6.2% recovery in 2024—still lagging public markets significantly—genuine alternatives continued demonstrating their value proposition.
The smart money wasn’t fleeing alternatives—it was fleeing bad alternatives. Institutional investors began distinguishing between assets that offered true diversification benefits and those that were just repackaged equity exposure with illiquidity as the only differentiator.
Art and collectibles markets remained robust, with auction houses reporting strong demand for blue-chip pieces. Wine investing benefited from vintage scarcity and growing Asian demand. Farmland provided both commodity exposure and real asset characteristics with steady cash flows.
These aren’t just random alternative assets—they share characteristics that VC lacks: scarcity, non-correlation to interest rates, income generation, or inflation protection. They serve specific portfolio construction purposes that VC simply cannot fulfill.
The fundamental issue isn’t with alternative investing—it’s with venture capital masquerading as an alternative when it’s really just private growth equity with extra steps.
Why our members prefer geniune alternatives
True scarcity vs. artificial scarcity: There will only ever be one 1963 Ferrari 250 GTO, but there can always be another food delivery app. Real alternatives derive value from genuine scarcity; VC companies face unlimited competition.
Income vs. promises: Music royalties generate quarterly payments, farmland produces rental income, and real estate provides cash flow. VC provides only promises of future liquidity events that may never materialize.
Non-correlation that works: Art values don’t move with interest rates. Tequila appreciation doesn’t depend on IPO market conditions. Litigation outcomes don’t correlate with tech sector sentiment. VC, despite being private, moves almost perfectly with public tech stocks.
Inflation protection: Real assets like farmland, commodities, and collectibles often benefit from inflation. VC-backed companies typically get crushed by rising rates and input costs.
Liquidity when needed: While alternatives aren’t as liquid as stocks, many offer better liquidity than VC’s 10-year lockups. You can sell art, cars, or wine at auction; you can’t force a unicorn to go public.
This isn’t about abandoning alternatives—it’s about choosing better ones. Modern Portfolio Theory still works; it’s just that VC doesn’t deliver the diversification benefits it promises.
A truly diversified alternative allocation might include:
- Real assets for inflation protection (farmland, commodities, real estate)
- Collectibles for non-correlation and scarcity value (art, cars, wine)
- Income-generating alternatives for cash flow (music royalties, private debt, infrastructure)
- Specialty finance for unique risk-return profiles (litigation finance, insurance-linked securities)
These aren’t exotic financial instruments—they’re alternatives that offer what alternatives are supposed to offer: diversification, non-correlation, inflation protection, or unique risk-return characteristics that complement traditional portfolios.
The alternatives industry is undergoing its own disruption, with investors finally distinguishing between genuine alternatives and repackaged traditional assets with illiquidity premiums.
At the top are alternatives that offer true portfolio benefits: scarcity, income, inflation protection, or genuine non-correlation. These include real assets, collectibles, specialty finance, and income-generating alternatives that serve specific portfolio construction purposes.
At the bottom are pseudo-alternatives like VC that offer all the downsides of alternatives (illiquidity, high fees, complexity) with none of the benefits (diversification, non-correlation, inflation protection).
So maybe our community’s cricket response to startup deals isn’t about access or deal flow quality. Maybe it’s about asset class selection. Maybe they’ve already figured out what institutional investors are slowly learning: when you want true diversification, there are far better alternatives to venture capital.
When Treasury bills yield 5% with perfect liquidity, VC needs to justify not just its returns, but its very existence as an alternative investment. Meanwhile, genuine alternatives continue proving their worth by actually delivering the diversification benefits they promise.
The smart money isn’t abandoning alternatives—it’s just getting smarter about which alternatives actually work.
That’s all for this week; I hope you enjoyed it.
Cheers, Wyatt
Disclosures & Disclaimers The information contained in this newsletter is provided for general informational purposes only and does not constitute investment, legal, tax, or other professional advice. Altea does not offer or sell securities through this newsletter. Any references to investment opportunities are not offers to buy or sell any security. You should not construe any such references as a recommendation to invest.
All investments carry risk and may result in loss. You are solely responsible for conducting your own due diligence and consulting with your own legal, tax, and investment advisors before making any investment decisions.
Altea does not guarantee the accuracy or completeness of information provided by third parties. Past performance is not indicative of future results.
Only accredited investors, as defined by applicable laws, may participate in Altea investment opportunities.
