In one of our recent Burn Rate podcast episodes, we already touched on the subject and few topics are stirring up the VC scene right now as much as continuation funds. Speedinvest has just launched a €30 million vehicle, Lakestar followed with a much larger $265 million fund, and other players such as HV Capital are also entering the space. What has long been standard practice in the US is now gaining momentum in Europe. The concept is simple: funds can hold on to their best portfolio companies for longer, while limited partners (LPs) have the option to cash out.

At its core, a continuation fund is a tool that allows VCs to extend ownership beyond the typical fund lifetime. Exits are rare at the moment, IPOs are being postponed, but LPs still expect distributions. Continuation funds offer a middle ground, enabling managers to retain exposure to high-potential assets while still providing liquidity to investors.

For general partners (GPs), the leverage works both ways: they can demonstrate DPI – distributed to paid-in capital – and thus build credibility with investors, while also capturing more of the upside from their strongest companies, which often only realize their full value after ten or twelve years. Many LPs have been tied up in funds for over a decade without seeing meaningful cash returns. Continuation funds present an elegant way to provide liquidity without selling assets below value.

Critics argue these vehicles are merely stopgaps, masking a lack of exits. But in private equity, continuation funds have long been a standard tool without any stigma. Their growing use in venture capital is arguably a sign of maturity rather than weakness. The real risk lies in using them as an excuse to delay exits indefinitely, which could quickly undermine credibility.

Economically, the structures are attractive as well: management fees and carried interest are reset with every new vehicle. For large houses like Lakestar, this is almost a no-brainer, while smaller funds must carefully weigh whether the complex and costly process is worth it. Still, for exceptional cases – such as Speedinvest’s recent move – even mid-sized players can find value in pursuing this path.

So, will continuation funds remain a niche, or are they here to stay? The signs point to the latter. As markets mature, companies take longer to reach exit readiness, and LPs demand more flexible solutions. In a few years, it may be the exception rather than the rule for a major VC not to have launched at least one continuation fund.