More GP Stakes in VC?Back to home
A venture capital investor shared this article with me. I won’t go into all the specifics of it, but it says that private equity fund managers are selling pieces of their firms to raise cash. Instead of investing by becoming a limited partner in the firm’s latest fund, some investors are seeking to buy part of the firm to gain exposure to the firm’s current and future investments.
This isn’t new in private equity. Neuberger Berman started a division in 2010 to focus exclusively on this strategy. That division, Dyal Capital Partners, merged with Owl Rock Capital Group in 2021 to form publicly traded Blue Owl Capital Inc. Blue Owl just announced the closing of Dyal Capital Partners V, a $12.9 billion fund focused on taking ownership stakes in approximately 20 private equity firms.
I’ve been closely watching the world of buying stakes in private equity firms for a few years, and I have some thoughts:
- It was only a matter of time before this trend reached larger venture capital firms. It’s starting to happen more now, as evidenced by Thrive Capital’s recent news.
- This approach could provide emerging venture capital fund managers with the runway needed to continually execute on their strategies.
- Venture capital fund managers early in their firm’s life cycle see selling part of their firm as having a negative connotation. This leads to many VC firm founders having a bootstrap entrepreneur mentality and the industry being a cottage industry (there are other reasons for this too).
- As more established VC firm founders realize liquidity by selling parts of their firms, more founders of smaller firms will be open to taking capital in exchange for equity so they can grow their firms.