Is Growth Equity Taking Over Where Venture Capital Failed?

Venture capital (VC) has long been treated as the backbone of global innovation, a system designed to fund bold ideas before they are proven. Yet the dramatic reversal that followed the sector’s 2021 peak has opened up debate about whether the traditional VC model, especially in the late stage, was ever durable. Global funding, valuations, and deal activity have fallen sharply, exposing structural weaknesses that years of abundant capital had previously masked.

In parallel, growth equity (GE) has emerged as a more resilient and disciplined investment model. While late-stage VC struggled under the weight of inflated valuations and unsustainable growth expectations, GE firms maintained stable deployment, consistent performance, and stronger alignment with founder-led businesses.

As VC recalibrates in 2024 and 2025, the question becomes unavoidable: is GE taking over where VC failed?

The Peak of Venture Capital in 2021

2021 marked the apex of global venture investing. According to CB Insights investors deployed over $621 billion worldwide, an unprecedented record. More than 500 new unicorns were created that year which is nearly three times the 178 formed in 2020. Valuations soared, mega-rounds became routine, and crossover funds such as Tiger Global, SoftBank Vision Fund, and Coatue accelerated deal velocity at a historic pace.

This optimism was fueled by near-zero interest rates and a belief that capital would remain abundant indefinitely. Startups with limited revenue, weak margins, or inconsistent unit economics raised funding at valuations traditionally reserved for mature public companies. Late-stage VC became synonymous with speed, scale, and aggressive market capture.

The Crash

The pullback began abruptly in 2022. Global venture funding declined to $445 billion, a 35% drop from the previous year. The correction deepened in 2023, with total VC investment falling to $285 billion, the lowest figure since 2017. U.S. deal flow fell to a 10-year low, declining 21% from its 2013 peak. 

Late-stage funding was hit hardest as IPO markets froze, SPAC activity evaporated, and many companies that had relied on continuous access to capital faced urgent liquidity challenges. The weaknesses accumulated during the boom years; unsustainable burn rates, unjustified valuations, and dependence on future rounds were suddenly exposed.

Why Late Stage Venture Capital Failed 

Late-stage VC’s shortcomings were rooted in a strategic shift toward hypergrowth at the expense of business fundamentals. Many unprofitable startups were attracting high valuations despite lacking profits or sustainable business models, a trend critics linked to excessive investor enthusiasm rather than fundamental performance. 

Valuations decoupled from underlying economics, driven by investor competition rather than company performance. The model assumed that capital would remain inexpensive, growth would solve structural inefficiencies, and public markets would always be willing to absorb newly minted unicorns.

By 2022, each of these assumptions unraveled.

Blitzscaling: The Growth No Matter What Playbook

A defining feature of the late-stage VC boom was blitzscaling, a strategy popularized by LinkedIn co-founder Reid Hoffman. Blitzscaling prioritizes rapid expansion even when doing so requires operational inefficiency and significant cash burn. Hoffman himself acknowledges the tradeoffs:“Blitzscaling is being inefficient; it’s spending capital inefficiently and hiring inefficiently… and those are not good things.” 

In a low-interest-rate environment, inefficiency could be tolerated because capital was effectively free. Startups could raise ever-larger rounds, extend runways, and justify aggressive spending to capture market share. But blitzscaling is inherently incompatible with periods of tightening monetary policy. The strategy depends on continuous access to cheap capital which is precisely what disappeared beginning in 2022. 

PitchBook’s 2023 Venture Monitor also concluded that unprofitable, cash-burning startups have seen the steepest valuation cuts in the high-rate environment. This means the very companies that benefited most from blitzscaling became the most exposed when financial conditions shifted. 

The Interest Rate Shock & VC’s Wipeout 

As inflation surged and interest rates rose sharply, the underlying fragility of late-stage VC became evident. High-burn startups could no longer rely on future funding rounds, and valuation multiples contracted across the private and public markets. Several major venture and crossover funds suffered historic losses during the correction. SoftBank’s Vision Fund faced a record $26.2 billion loss , with leadership later acknowledging that investor optimism during the prior cycle had been excessive. Tiger Global similarly reduced the reported value of its venture investments by roughly one-third, marking a sharp reversal for a firm that had previously helped accelerate the pace of late-stage venture investing.

The public technology selloff reinforced these dynamics, as higher interest rates sharply reduced valuations for unprofitable technology companies. Together, these developments revealed that late-stage VC’s momentum had been sustained less by rigorous company performance than by unusually favorable financial conditions.

Growth Equity: The Disciplined Counterpart 

Where late-stage VC faltered, GE demonstrated relative resilience. The GE model targets companies that have already achieved meaningful revenue scale, established product-market fit, and predictable financial performance. Rather than underwriting speculative growth, GE firms recurring revenue and strong customer retention, targeted gross margins of 70%,  and efficient go-to market execution supported by clear pathways to profitability. 

In contrast to late-stage VC’s more speculative approach, GE investors typically take minority stakes, limit founder dilution, and work alongside management teams to strengthen operations and institutionalize growth. During the recent downturn GE deal actively declined far less than traditional VC, reflecting the sector’s emphasis on fundamentals. This discipline helped insulate GE from the volatility that disproportionately affected high-burn startups reliant on continued access to external capital.

Case Studies: Growth Equity in Practice 

Several leading GE firms illustrate the durability of the model in practice. Insight Partners, for example, has built its investing playbook around operational guidance and software metrics through its ScaleUp resources, helping companies professionalize go-to-market execution and scale more efficiently. TCV has similarly built a reputation for patient, long-term investing, including backing comvpanies such as Netflix and Spotify through growth-stage investments, reflecting an approach oriented toward durable market leadership rather than short-term momentum. General Atlantic offers a third illustration of the model’s resilience, emphasizing partnering with founder-led businesses to help them achieve sustainable growth, while maintaining an approach built around long-term value creation and disciplines growth investing. Across these examples, GE’s defining advantage is not just capital, but a repeatable operating philosophy designed to scale businesses without depending on perpetual cheap funding.

The Founder Friendly Shift 

As the limitations of late-stage VC became more visible, a growing number of founders began turning to GE as a preferred alternative. GE investors often provide growth capital in the form of minority stakes, which can allow founders to raise meaningful funding while maintaining operational control. In practice, that structure tends to be more appealing to founder-led teams because it can mean less dilution and fewer control provisions than late-stage venture rounds, especially when founders want flexibility on pace, hiring, and timing of exits. Rather than pushing companies into aggressive “growth at all costs” playbooks, GE firms typically position themselves as long-term partners, bringing capital and support while avoiding day-to-day control.

This shift has become more pronounced in a higher-rate environment. When cheap capital disappeared, founders watched peers who were optimized for blitzscaling face down rounds, restructurings, and difficult tradeoffs, while companies with more disciplined growth profiles retained leverage. Firms such as Summit Partners have leaned into this positioning publicly, emphasizing a focus on profitable growth and long-term value creation, and being recognized on Inc.'s Founder-Friendly Investors list for its orientation toward supporting founder-led businesses.

Conclusion 

The volatility of the past several years has exposed the structural weaknesses of the late-stage VC model. Strategies built around perpetual growth and cheap capital proved unsustainable once financial conditions shifted, revealing how dependent many companies had become on continued access to funding rather than durable fundamentals.

GE, by contrast, has demonstrated resilience precisely because it avoided those excesses. Its emphasis on operational discipline, sustainable scaling, and long-term value creation aligns more closely with a higher-rate, more selective capital environment. As private markets continue to reprice risk, GE is not merely filling a gap left by VC; it is increasingly defining what responsible growth looks like going forward.