Mitigating Problems and Increasing Portfolio Value

As venture capital funds mature, General Partners (GP’s) of these funds can often face a number of challenges.

  • Large limited partners in the fund want to sell their stake as circumstances for them have changed
  • The fund is near or past its ten-year life and there are still private assets that will take longer to achieve an exit
  • The fund has called all capital and yet several of the remaining assets will need more capital to achieve a successful and valuable exit
  • The General Partner has had some issue occur (e.g. key-man provision has been tripped) and the limited partners want the GP to liquidate the fund
  • The General Partner will not make any carry and as such is just managing the fund for a small amount of shrinking fees – thereby misaligning incentives for the LP’s and GP’s
  • The investment strategy has changed and the GP wants to focus its time and effort on certain companies while achieving some cash for certain non-strategic investments

Saints works with GP’s to mitigate or solve these challenges in an effort to increase the value of the portfolio to LP’s and align incentives with the GP’s.

The type of solutions Saints offers to GP’s fall into four general categories.

  • Fund Recapitalizations – Saints offers General Partners a chance to recapitalize their fund. This often involves agreeing on a price (often a discount to current NAV) and offering any LP interested in liquidity cash for the LP stake or offering them a chance to roll their current ownership in conjunction with a modification of the LPA. Recapitalizations often involve Saints providing additional capital for follow-on investments into the exisiting portfolio and often involve rewriting the LPA such that a new fee structure is put in place for the General Partner as well as a new carry structure. An example of this type of transaction can be found here.
  • Partial Sale of fund stakes in portfolio companies – Saints offers General Partners the chance to sell their stakes in some portfolio companies while keeping others. This often raises additional capital and allows the General Partner to focus on its most promising investments. Alternatively, a General Partner may decide to sell a percentage of every company in its portfolio – often called a “strip” transaction. Thereby monetizing a small part of the portfolio, returning capital to LP’s or using money for additional follow-on investments – and derisking the portfolio. Examples of these types of transactions can be found here.
  • Entire Sale of portfolio – Saints offers General Partners the option of selling their portfolio to Saints – this often occurs when there are only a few stakes left in an old fund or there is a legal mandate to liquidate the fund. Examples of these types of transactions can be found here.
  • Capital Infusions – Saints offers a new investment, secured solely by stakes in companies held by the fund, into the fund in the form of debt or preferred LP units. This money comes with a minimum priority return and can be used by the General Partner to invest as it sees fit. These transactions usually require approval by the majority of the LP’s in the fund. Examples of these transactions can be found here.

These types of transactions can provide the General Partner and its investors several benefits which include:

  • Additional Capital
  • Reset of Carried Interest Hurdle
  • Alignment of LP’s who want to continue forward with a new timeline
  • Cash-out of LP’s who want immediate liquidity
  • New platform for GP’s, including sourcing of new LP’s
  • Alignment with an experienced and industry knowledgeable partner (Saints isnt like an LP advisory board, we are experience Venture Capital investors) and as such, can understand and appreciate the decision process surrounding exit timing and follow-on capital.