Wouldn't this just indicate that VC firms are charging too much for LP's to invest in a VC, or that there's some rich investors out there (LP's) who are willing to risk direct investments in small businesses, rather than investing blindly in the stock market?
Why would more direct LP investments indicate a peak in an "investment cycle"?
1. There's a broader trend of LPs moving to invest directly in alternative asset classes. There are a number of reasons for this. FOMO is one in this particular market.
2. Because the market is so hot, folks are more interested in ground-floor (seed stage) investments that are harder to get exposure to in traditional venture funds.
You must also realize that optimizing these direct investments is a PITA. Newbie direct investors are going to learn a lot of harsh lessons when it comes to pro rata rights in this market, assuming they even ask for and get them.