No, the capital returned to a VC fund after an exit is not reinvested. It's distributed to the LPs. And while yes, strictly speaking, the LPs now have more money to invest than they had before, they are mostly giant endowments, pension funds, and foundations who only have a small fraction of their assets in VC funds, and whose future investment decisions are decided by asset allocation policies and not by recent returns.
The way big exits cause more money to be invested by VCs is not that capital is freed up thereby, but rather that news of them makes more people want to start or invest in VC funds. But that process is much slower.
Thanks! That makes sense. I just hear so many names of individuals being associated with these windfalls it's easy to imagine them continuing to invest on the basis of their holdings being liquidated.
The way big exits cause more money to be invested by VCs is not that capital is freed up thereby, but rather that news of them makes more people want to start or invest in VC funds. But that process is much slower.