What happens when a VC fund’s clock runs out, but the game isn't over?
Private Tech company exits have dried up since 2021. Companies like Canva, Stripe, Databricks are 10+ yrs old. SpaceX, Epic Games, Klarna are 20+ yrs old.
The traditional rule book for VC fund lives lasting 10 to 12 years has gone out the window.
So what happens when a fund is holding a fund-returner type winner, but the portfolio company isn’t ready to exit?
Increasingly, the answer is continuation vehicles (CVs).
CVs extend the investment horizon for VC funds by placing select portfolio companies in a new fund controlled by the original GP, while rolling over or changing the end-investors.
Here’s an oversimplified play-by-play:
🔎 The VC fund, we’ll call this the GP, identifies one or several portfolio companies to put into a CV.
🧬 A new entity is created and managed by the GP, this is the CV.
🎢 Investors in the original fund (LPs) are given the choice to roll their existing investment into the new CV, or cash out.
💸 In the event of existing LP cash outs, new LPs are brought into the CV.
CVs aren’t the only solution. GPs can sell in the secondary market, distribute private company shares to LPs, push for fund life extensions, or wind down altogether.
But we’re seeing a major surge in continuation vehicles for high-value VC-backed companies. Some recent notable CVs are below (all public info, linked in comments):
New Enterprise Associates (NEA) crafting a $540M continuation vehicle with stakes in Databricks, Plaid, and Tempus AI (via Bloomberg).
Sequoia Capital offers LPs the chance to cash out up to $861M of Stripe shares into a new Sequoia fund (via Axios).
General Catalyst building a ~$1B continuation fund with stakes in Stripe, Gusto, and Circle (via TechCrunch).
Lightspeed launching a ~$1.5B multi-asset continuation fund (via Buyouts).
CVs have been popular in the PE/buyout space for some time and it’s great to see VC adopting another liquidity solution.
DISCLAIMER: "This is for informational purposes only and does not constitute an offer to buy or sell securities. Any investment in private funds is speculative, carries risk, and is suitable only for those who can bear the loss of their entire investment. Private funds investments are illiquid, and shares will not be redeemable at investor's discretion. Investors should fully understand and be able to assume the risks associated with investing in private funds."
