Between 2018 and 2022, venture capital operated in a completely different market environment. Capital was cheap, valuations kept climbing, and startups were raising follow-on rounds at a pace that, in hindsight, now feels detached from reality. Investors were competing aggressively for access to deals, while many founders were building with the assumption that another round would always be available. A few years later, much of the ecosystem is still dealing with the consequences of that cycle.
Across Europe, and particularly in Central and Eastern Europe, more investors are openly discussing so-called “zombie portfolios” — companies that managed to raise venture capital during the boom years but are now stuck between inflated valuations and limited liquidity that no longer match venture-scale expectations.
The topic became one of the central conversations during Vestbee CEE VC Summit in Warsaw, where investors from Finch Capital, Acurio, SMOK Ventures, and 500 Global, together with B-M Lawyers, discussed what actually created the problem, why it became especially visible in CEE, and whether secondaries and continuation vehicles are becoming a permanent part of the venture ecosystem.
What happened between 2018 and 2022
Many investors now point to frozen exit markets and the broader downturn, the end of cheap capital, as the main reasons behind the rise of zombie portfolios. But according to Pedro Santos Vieira, Partner at 500 Global, the problem is rooted deeper — in the consequence of how venture capital operated during the 2018–2022 cycle.
In his view, cheap capital, aggressive competition for deals, and fear of missing “tier-one companies” pushed much of the industry away from core investment fundamentals. Startups were increasingly evaluated based on their ability to raise the next round rather than whether they were building durable businesses with real market demand.
“The VC game forgot the fundamentals of why you invest in a certain company,” Vieira said. According to him, weak investment discipline — rather than liquidity alone — is what ultimately created many of today’s zombie portfolios.
Why the zombie portfolio problem looks worse in CEE
Several investors argued that the zombie portfolio problem became especially visible in CEE because the region entered the downturn with weaker late-stage infrastructure and far fewer liquidity options than Western Europe. According to Kiril Dimov, Principal at Acurio, the slowdown hit CEE significantly harder than Europe overall. While European VC funding declined by around 38% in 2023, the drop across CEE reached nearly 68%, exposing how dependent many startups had become on continuous access to capital.
The problem became particularly visible at later stages, where the region still lacks deep pools of growth funding, strategic buyers, and mature exit markets. But several panelists argued that the issue goes beyond the downturn itself.
Koziarska said that during the boom years, too much capital entered ecosystems that were still structurally immature. Public and institutional money helped accelerate venture activity across Poland and broader CEE, but it also pushed many funds to deploy capital too quickly, often into startups that were never truly built for venture-scale outcomes. “Some of these companies will become good, stable businesses,” she said. “But they are not VC-backed companies.”
Vieira argued that the combination of abundant capital and weak exit infrastructure left many startups stuck in the middle — too funded to fail quickly, but not strong enough to generate the kind of returns venture capital expects.
Can secondaries “clean up the mess”?
As exits remain limited and liquidity timelines continue to stretch, more funds are turning to secondaries and continuation vehicles as portfolio management tools. Still, several investors argued that these structures alone will not solve the underlying problem behind zombie portfolios. According to Dimov, secondaries should increasingly be viewed as part of long-term liquidity and portfolio management rather than temporary market fixes.
“Private companies are staying private for longer,” he said, pointing to the fact that many large tech companies continue delaying IPOs despite having access to significant private capital. Dimov is sure that liquidity can no longer be treated as something that eventually arrives on its own.
As timelines stretch, funds need to become far more proactive about exit planning, while secondaries and continuation vehicles are increasingly turning into tools for managing risk and returning at least part of the capital back to LPs.
At the same time, not all secondaries serve the same purpose. Vieira distinguished between what he described as “cleanup secondaries” and strategic secondaries, arguing that simply moving weak companies into new structures does little to address the underlying issue. “The cleanup has to be behavioral, not financial,” he said. In practice, that means investors still need to decide which companies genuinely deserve more time and capital — and which ones should simply be written down.
Continuation funds and the question of who deserves more time
Continuation vehicles only make sense when they are built around genuine winners rather than used to delay difficult portfolio decisions, as Pedro Vieira emphasized. “Focus on the winners,” he said. “Everything else should either remain in the previous fund or be written off.” In his view, companies moving into continuation structures should show clear signals of category leadership, realistic exit potential, and still offer room for the GP to add strategic value beyond capital alone.
Diana Koziarska agreed, arguing that venture timelines often do not match how long meaningful companies actually take to mature. “If you have the winners that can really move the needle on exit value, then sure,” she said. “But the rest — just write them down.”
At the same time, continuation funds remain a sensitive territory because they create unavoidable conflicts of interest between GPs managing both sides of the transaction and LPs looking for liquidity. According to Iga Wojtczak-Opala, Senior Lawyer at B-M Lawyers, the biggest tensions usually emerge not because governance processes are missing, but because LPs question whether those processes are genuinely transparent and independent.
“The most sensitive areas tend to be valuation, timing, and information asymmetry,” she said. In her view, independent valuations, LP advisory committee approvals, and giving investors a real choice between cashing out or rolling into continuation vehicles are becoming increasingly important as the secondary market matures.
Wojtczak-Opala also noted that the CEE market still remains far less standardized than Western Europe, with fewer repeat transactions, a smaller pool of specialized secondary investors, and more fragmented market practices across the region.
Are secondaries and continuation funds here to stay in VC?
Secondaries and continuation funds are increasingly becoming part of the broader venture infrastructure rather than temporary market solutions, particularly as startups stay private longer and liquidity timelines continue to stretch.
Koziarska described the shift as a natural stage in the ecosystem’s evolution rather than simply a response to the downturn. “This is a new option on the table — and it’s here to stay,” she said. Still, despite the growing use of secondaries and continuation vehicles, several investors argued that financial structures alone cannot compensate for weak investment discipline.
For many, the broader lesson from the 2018–2022 cycle was not simply that liquidity disappeared when markets turned, but that too much of the industry stopped focusing on whether companies were creating real long-term value in the first place.
