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Here's One Way To Raise Venture Capital In A Recession

Industry Ventures has raised $265 million for a new fund that buys stakes in VC funds on the cheap from limited partners looking for a quick exit. According to VentureBeat about 65 percent of the money came from pension funds and about half of the 20 investors were new investors.

As often happens in a downturn, there has been increased interest in secondary funds so far this year. Hedge fund research group Preqin estimates that secondaries will have a record capital-raising year, with a target of $30 billion, according to its annual poll of funds. According to Dow Jones’ Online Financial News the largest secondary fund, Coller Capital, is aiming to raise $8 billion to $10 billion in new funds this year — also a record for them.

Similar to distressed-debt funds, which buy debt for deep discounts during periods of weakness, funds like Industry Ventures buy stakes in VC funds from limited partners who want to avoid having to put more money into VC funds through so-called capital calls, or requirements to continue to invest a certain amount of money in the fund. Industry Ventures isn’t wasting time putting its money to work; it has already made 11 acquisitions, including the purchase of nine funds from Washington Mutual for $7 million.

2 Responses to “Here's One Way To Raise Venture Capital In A Recession”

  1. Headline is raising attention, yes!
    But venture capital is not about operating buy outs of potfolios belonging to LPs which are not willing to honour their commitment any longer. After bubble bust in 2000, we could read about "vaulture" funds, a word that I d'ont like especially neither.
    For semantics, let "venture capital" where it has to be, i.e. direct invesment in an innovative company at max 30' from partner.

    I'll give you another example. Here in France, where there is a lot of money for innovative company through different type of investment professionals, if you make a tour of some said venture capitalists, they'll tell you, without reconsidering their "label", that they only invest in profitable companies with proven business models! Is it still venture capital? Sometimes we may need writers/journalists remind the essence of this practice, otherwise we lose progressively the neede marks.

  2. When you look at the measurements for the PE/VC industry, you find a steep decline in almost every relevant metric: available funds, exits, investment volume, etc. There's only one segment that is consistently growing – secondary funds. I'm predicting that we're going to see more of these types of funds in the coming months – heck, I would love to start one. Anyone interested?