Tech investing is challenging for VCs amid the IPO lull and excessive AI hype, according to experts.

• Tech investors are facing challenges in cashing out of long-term bets, according to venture capitalists at Web Summit, one of Europe's largest tech events.
• Edith Yeung, general partner at Race Capital, stated in a CNBC-moderated panel that in the VC world, liquidity is the key factor.
• Despite "nuts" funding rounds for AI firms like OpenAI, Larry Aschebrook, founder and managing partner of G Squared, stated that the search for liquidity is becoming increasingly challenging.

The venture capital industry is facing challenges due to a lack of blockbuster IPOs and M&A activity, which has reduced liquidity in the market. Meanwhile, AI startups are capturing the attention of investors.

Two venture investors, whose portfolios include multibillion-dollar AI startups Databricks Anthropic and Groq, stated that cashing out of some of their long-term bets has become increasingly challenging at the Web Summit tech conference in Lisbon.

Edith Yeung, general partner at Race Capital, emphasized the importance of liquidity in the VC world during a CNBC-moderated panel, stating, "In the U.S., when discussing the presidential election, it's all about the economy, stupid. And in the VC world, it's really all about liquidity, stupid."

The attainment of liquidity is highly sought after by VCs, startup founders, and early employees as it offers the opportunity to profit or suffer losses on their investments.

When a VC makes an equity investment and the value of their stake increases, it appears as a gain on paper. However, when a startup IPOs or sells to another company, their equity stake is converted into hard cash, allowing them to make new investments.

The scarcity of IPOs in recent years has made it challenging for venture capital, according to Yeung.

There has been a surge in interest from investors in AI companies.

OpenAI's dominance has been determined by Big Techs, including Microsoft, which has invested billions in the company, resulting in a $157 billion valuation, as stated by Yeung.

'The IPO market is not happening'

G Squared's founder and managing partner, Larry Aschebrook, acknowledged that finding liquidity is becoming increasingly challenging, despite the success of blockbuster funding rounds for companies like OpenAI, which he deemed "a bit nuts."

According to Aschebrook, businesses are experiencing liquidity issues due to the lack of IPOs in the market. However, funding rounds are taking place for generational-type businesses.

Even though these deals are significant, Aschebrook believes they are not benefiting investors because more money is being invested in illiquid, privately held shares. G Squared, an early investor in Anthropic, a foundational AI model startup competing with Microsoft-backed OpenAI.

"If you want to cook dinner, you better sell some stock," Aschebrook advised, implying that venture capitalists are being deprived of profitable share sales that would enable them to realize returns.

Looking for opportunities beyond OpenAI

Both Yeung and Aschebrook expressed excitement about opportunities beyond artificial intelligence, including cybersecurity, enterprise software, and crypto.

Yeung stated at Race Capital that there are investment opportunities in sectors such as enterprise and infrastructure, not solely in AI.

"Our main focus is not on short-term outcomes, specifically an exit within two to three years, but rather on long-term goals," Yeung stated.

"If President Trump can make a comeback by 2025, there are other industries that I find interesting, including crypto, which is already making a comeback."

Wiz, a cybersecurity firm, is a key portfolio investment at G Squared and has experienced growth similar to OpenAI, according to Aschebrook.

The startup, despite turning down a $23 billion acquisition bid from Google, achieved the $500 million annual recurring revenue (ARR) milestone in just four years after its founding.

Roy Reznik, Wiz's co-founder and vice president of research and development, revealed to CNBC last month that the company aims to achieve $1 billion in ARR by 2025, which is double the current year's target.

Aschebrook stated that there are many logos in our portfolios that are not raising $5 billion in two weeks but are the stars of tomorrow.