Amid scarce liquidity, VCs might explore innovative strategies to refund investor capital
Welcome to the final edition of The Exchange! With TechCrunch+ concluding this month, The Exchange column and its newsletter are bidding farewell as well. We extend our heartfelt gratitude to all our readers for your continuous support, engagement, and camaraderie over the years.
A special shoutout goes to Anna, whose outstanding contributions as the lead author of this newsletter have been nothing short of brilliant. Her dedication and hard work deserve boundless recognition.
In today’s edition of The Exchange, we’re delving into continuation funds, reminiscing over some of our favorite historical Exchange entries, and sharing our anticipation for the exciting topics we’ll be covering throughout the remainder of the year! — Alex
Continuation funds
Continuation appeared to be a fitting theme from our perspective, and it’s undeniably a timely one. As VC Roger Ehrenberg pointed out in a recent episode of the 20VC podcast, “The greatest source of liquidity now is going to be continuation funds.”
For those unfamiliar with the term, let’s reference the Financial Times for a definition:
Continuation funds, commonly found in private equity (PE) but less so in venture capital, are secondary investment vehicles that enable firms to “reset the clock” for several years on certain assets in older funds by transferring them to a new vehicle under their control. This arrangement benefits the backers of a VC fund, known as “limited partners,” allowing them to either roll over their investment or exit.
The question of “why now?” in the context of venture capital activity over the past few months is readily apparent. As highlighted by the StepStone Ventures team in their discussion with our colleague Becca Szkutak during her December 2023 investor survey: “With portfolios brimming with unrealized value, fewer immediate exit opportunities, and longer hold periods looming, general partners (GPs) are beginning to explore creative avenues to generate liquidity.”
