Continuation Funds: A New Frontier for Venture Capital

Team S · 2024-11-08T11:58:24.000Z

Venture capital firms are increasingly turning to continuation funds as a means to provide liquidity to investors in a market where exits have been scarce. This trend is not limited to established U.S. firms but is also gaining traction in emerging markets. Alex Branton, founder of London-based Nodem Capital, is pioneering this approach in what he calls "next wave" markets, including Emerging Europe, Turkey, Latin America, Southeast Asia, and India. Nodem aims to offer secondary liquidity to holders of VC-backed assets in these regions, addressing a growing need as more funds reach their 10-year mark. The strategy comes at a time when the investable universe of assets held in VC funds older than 10 years is expected to grow from $15 billion to around $130 billion. Nodem's focus will be on providing partial liquidity through preferred equity investments, allowing investors to maintain exposure and control while accessing needed funds. Branton's approach is particularly relevant in the current market, where there are significantly more companies being financed by VCs than those finding exits. This overhang of assets has created a demand for liquidity solutions, with many limited partners reluctant to commit to new funds until value is released from earlier vintages. While continuation funds have gained popularity in private equity, venture capital firms have been slower to adopt this model. However, recent moves by notable VCs like Lightspeed Venture Partners, General Catalyst, and New Enterprise Associates suggest a growing interest in this strategy. Nodem Capital plans to start investing in the first quarter of 2025, subject to regulatory approvals. The fund will operate with a traditional 2 and 20 fee structure and a five-year life, with the option to extend for two years. As the venture capital landscape evolves, continuation funds may provide a crucial tool for managing long-held assets and meeting investor demands for liquidity in an increasingly challenging market environment. https://www.institutionalinvestor.com/article/2dztc2lpv3s8yfan6wgzk/corner-office/continuation-funds-come-to-venture-capital

Member Login Get Access

Continuation Funds: A New Frontier for Venture Capital | Newnex