Vintage Partners X, your fourth secondaries fund, is targeting venture secondaries and fund of funds deals in Europe, Israel and – in the right circumstances – the US. Where do the opportunities lie in these markets?
We are seeing opportunities both in venture funds and in investing into companies. On the companies side, you have situations where founders want liquidity, they want to build a substantial business and also to pay the mortgage. We are seeing situations where angels who invested in a company realise that there are demands for additional follow-on capital, are concerned about being diluted and like to have some liquidity on what they’ve invested in up to this point.
Each market’s very different. In markets where there are [stock] options for employees, sometimes employees who have left the company want liquidity and the company would prefer those shares to be in the hands of a friendly investor – that’s another opportunity.
Another thing we are starting to see increasingly is that there are a lot of funds out there from 2000, 2001 and 2002 that have not yet been wound down. And so there is some interest in selling the tail-end portfolio and GP buyout situations.
On the limited partnership side, in many cases big LPs are cutting down their number of relationships to certain core relationships. Non-top-30 or top-40 global venture funds would not necessarily be among these core relationships and therefore they’re looking for liquidity in those cases as well.
You have a services team that connects large corporate customers with start-ups. Do secondaries investors have to get involved in this way?
I think GPs are going to start asking the question and companies are going to start asking secondaries investors, fund of fund investors and late-stage investors – ‘look what our early stage investors are doing for us, what are you going to do for us?’
We came to the conclusion that we have a very broad database of companies that we track today – about 6,500 companies – and we found that many large corporates, Global 10,000 companies, are looking for curated technology solutions.
They are looking for technologies that will help them solve problems. My partners and I and are whole team – technology investing is all we do. We track trends in the market, we track the companies. We thought that we could add real value because we’ve got this database and we can hook up these companies, these start-ups, with larger companies.
It’s worked out well. We’ve now done curated mapping for almost 250 Global 10,000 companies. Last year we set up 500 qualified lead meetings between start-ups and potential customers. It’s a win for the large corporations because they are getting access to interesting start-ups that someone has curated, and diligenced for them, without being charged. The start-ups get access to potential customers and we get the goodwill of the being the ones who didn’t take a fee but have been helping both sides of the relationship.
Prices are high at the moment. Does it affect your speed of deployment?
Yes, I think valuations are quite high. We’ve been taking our time. That’s one reason we’ve raised a fund that’s relatively small; we are looking at interesting companies that can scale and become significant and we want to find those opportunities at a valuation we believe is fair and is a win for both sides.
The large secondaries funds have gotten so large that the smaller positions in venture funds and direct companies are less interesting to them, so we are not seeing the same degree of price inflation. In fact, the rise of the NASDAQ is allowing companies in later stages to still raise at fairly substantial valuations. In other words, the bar has already been set relatively high.