Cendana and Kline Hill have a new $105 million to buy stakes in seed venture capital funds from limited companies looking to sell

If you asked investors to name the biggest challenge facing venture capital today, you would likely get a near-unanimous answer: lack of liquidity.

Despite investing in startups or venture capital funds that have increased in value, due to the scarcity of IPOs, these bets do not generate much, if any, money for their backers. This is the disadvantage of private investment versus the public market. Corporate shares in private companies such as startups cannot be sold at will. Companies must authorize their existing investors to sell their shares to approved others, which are known as secondary sales.

Cash-hungry venture investors, whether VCs themselves or their limited partners, are increasingly looking to sell their illiquid positions to secondary buyers.

Now, add to that that many early-stage startups were overvalued during the fundraising frenzy that peaked in 2021 and those stocks may now be worth less. This represents a new and unique opportunity to buy shares in early-stage venture capital funds, in addition to shares in emerging companies, at relative deals.

Today, Cendana Capital, a fund of funds that invests in dozens of… Venture companies in the seed stage And a partner klein Hill Partners, A firm focused on buying previously held small private assets announces a new $105 million fund, Kline Hill Cendana Partners, well above the $75 million target they initially hoped to raise.

“Over the last couple of years, we’ve heard from our portfolio funds, ‘We have a family office that wants to sell its $2 million commitment.’ Are you interested in buying it?” said Michael Kim, founder and managing director of Cendana Capital.

Kim felt that the opportunity to increase his company’s equity in promising venture funds and startups at a deep discount was too good to pass up. But since investing in secondary assets requires experience that none of Cendana’s investors have, he decided to join Kline Hill.

Kim said raising money for this fund was easy. Cendana Limited Partners was asking Kim to take advantage of this buyer’s market.

“We simply passed the hat on to our existing LPS in Klein Hill and Cendana,” Kim said.

Purchase stakes in seed boxes

What’s unique about Kine Hill Cendana’s investment vehicle is that it buys secondary stakes in seed-stage companies and individual companies from seed funds. According to Kim, most current minor leaguers are too old to take that opportunity.

It is difficult not to see the coexistence between the two companies. Cendana’s relationships with its portfolio funds, including Lerer Hippeau, Forerunner Ventures, and Bowery Capital Kline, help it take the lead in sourcing secondary deals. It then passes these opportunities to Kline Hill, which evaluates, underwrites and negotiates the deal price.

While Kline Hill has been investing in secondary venture capital since the company was founded in 2015, Chris Paul, a managing director at the firm, said the partnership with Cendana provides the kind of information that is extremely valuable to the investment process.

“What’s most exciting for us is that we’re able to do transactions where I think any of us individually would have a hard time getting over the line.” said the bull.

The current plan is to invest the entire $105 million fund through the end of 2024. The two companies are experimenting with this joint venture, and if all goes well, they will raise a follow-on fund next year.

The two companies are not alone in noticing a significant opportunity in acquiring stakes in previously owned projects. Traditional secondary investors, e.g Lexington Associates And Black stone, recently raised its largest secondary fund ever. While these tools target all types of private assets, investors say some of this capital must go into the project. In addition, Industry projects It has approximately $1.5 billion allocated for used venture capital.

But such billion-dollar funds “usually focus on much larger, multi-stage companies,” Kim said. Applying such big money tactics to the seed stage is much less common.

Kine Hill Cendana is on to something. As venture capital-backed companies tend to remain private longer than the 10-year cycles of investor funds, the need for liquidity is likely to continue to grow.