With liquidity scarce, VCs can get creative to return cash to investors

Welcome to the last issue of Exchange, With TechCrunch+ ending this month, the Exchange column and its newsletter are also ending. Thank you for reading, emailing, tweeting and staying with us all these years.

PS My special thanks to Anna, who has been nothing less than a brilliant lead writer for this newsletter since she took over it. She deserves endless credit for her work on email.

Today on Exchange, we’re exploring sustainability funds, counting down some of our favorite historical exchange listings, and discussing what we’re excited to report for the rest of the year! – Alex

continuity fund

Sustainability seemed like an appropriate topic from our perspective. It’s also very timely: “The biggest source of liquidity now is going to be continuity funds,” VC Roger Ehrenberg recently predicted. episode Of the 20VC Podcast.

If you are not familiar with this term, let us know to FT For a definition:

Continuity funds, which are common in private equity [PE] But rare in venture capital, is a secondary investment vehicle that allows them to “reset the clock” by several years by selling some of the assets in the old funds to a new vehicle that they also control. This allows the VC fund’s backers, known as “limited partners”, to roll over or exit their investments.

If you’ve been tracking venture capital activity over the past few months, the question “Why now?” It is easy to answer. As told to our colleague Becca Szkutak from the Stepstone Ventures team December 2023 Investor Survey: “With portfolios filled with unrealized value, fewer opportunities for immediate exit, and longer term horizons on the horizon, GPs are beginning to get creative to generate liquidity.”

In practice, new investors in a continuation fund invest in the existing portfolio, but “it reflects today’s valuation,” Ehrenberg said. This reevaluation and the potential conflicts of interest surrounding it sound challenging in theory, but Ehrenberg doesn’t think so. “You have a whole host of new investors looking at portfolios, so they are the price setters, not the existing managers.”

It’s not just like very big funds Insight Partners And speed of light He can also explore this option. “This is a viable strategy for a decent portion of the venture industry,” Ehrenberg told 20VC host Harry Stebbings.

Whether it’s continuation funding, strip sales or secondaries, there is a clear motivation for VCs to look for solutions to their often poorly timed cycles, as we already saw. rise of permanent capital and publicly listed funds. A common refrain in today’s economy is that projects and companies are not given the time they need to become fully successful, so even if it involves a temporary discount, it’s good to hear that there is more to net investor portfolios to shine. Ready to give time.

rip exchange

The exchange began its life in late 2019, before it even had a name. This soon became a daily column during the week, and later a weekend newsletter. For those of you interested in the historical quirks of creating media products, there was a TechCrunch+ product on the Exchange site, but its weekend issue was sent for free as an email. Why was it so? Because at that time we simply did not have the internal technology to send emails to subscribers!

Over the course of the exchange’s lifetime on TechCrunch+ we’ve sent over 1,000 columns and newsletters, making it the largest and – if at all possible – most impactful single project to attract customers to our paid product. The exchange and TC+ were inseparable, so it makes sense that they are being retired together. Still, like any project that blends both work and personal passion, we will miss it.

From its inception, into the $100 million ARR club and the fear-filled early pandemic days of stock market collapse and stock market collapse, the exchange was poised to herald the conclusion of the startup boom of 2020-2022 and beyond. We went from a whirlwind of massive rounds and IPOs to seeing venture capital dry up and startup exits become rarer than gold. It’s gone wild.

Anna Exchange newsletter acquired in early 2022, around the same time that Alex became editor-in-chief of TechCrunch+. Columns remained a group project, but we had to divide and conquer to keep our output at full tilt.

Below is a list of some of our favorite exchange listings. Of course, we couldn’t see the entire collection back – which you can find Here – So consider this a partial download of Hits:

• $100M ARR Club (December 2019). The beginning of a long-running series looking at pre-IPO startups. A group of entrants such as Monday.com later went public.
• Why is everyone building OKR software? (January 2020). Our first “Startup Cluster” style post explores what we found to be an unusually busy segment of an upstart tech company’s endeavor.
• API startups are very popular right now (May 2020). API startups will remain popular for years to come, relying on the model that Twilio helped pioneer. It’s interesting to think back to May 2020, when there was still a lot of fear in the market. We had no idea what was going to happen next.
• Don’t hate low-code and no-code (May 2020). The low, no-code debate has subsided somewhat as the method of creating software that non-developers manipulate and bend to their will has become more table stakes than a controversial product option. Yet, it was not always this way.
• It’s never been better for startups (July 2021). By mid-2021, it was clear that the market for startup stocks was in a new era, with investors piling cash into every software company.
• How to streamline the math for today’s skyrocketing startup valuations (July 2021). Underpinning the massive funding boom we saw earlier was an expectation that software development would be faster, and last longer, than previously expected. This turned out not to be true.
• What could stop the startup boom? (September 2021). We were a little concerned later in 2021 that the investment pace was not entirely sustainable. The market will remain hot for some time yet, but our notes about potential disruptions to the startup boom proved to be reasonably accurate. Interest rates really changed the game.
• More LP transparency is overdue (January 2022). VCs will tell you who they invest in, but are often more silent about their own backers. We argued that startup founders needed a little more information about where their capital was ultimately coming from.
• Why you shouldn’t ignore Europe’s deep tech boom? (February 2022). An interesting story developing in recent quarters has been the resilience of Europe’s ventures and startups during the current downturn in private-market capital investment. We said European deep tech is set to do well. And, well, we were right.
• Yes, it has become harder for startups to raise funding (July 2022). By mid-2022, it was clear that the bullish time was over, despite the enthusiasm for 2021 extending into early 2022.
• The rise of platform engineering, an opportunity for startups (December 2022). Instead of investing in more developers, why not spend it on helping them be more productive? Subsequent cuts to developer payroll made it clear that the era of mass hiring was behind us, making the thesis here all the more relevant.
• mirage of dry powder (January 2023). After a disappointing end to 2022, the optimistic view was that VCs had plenty of dry powder – capital to put to work – they were sitting on. Surely those funds will loosen up and bring back the good times? Anna argued that some venture capital sitting on the sidelines was theoretically less “real” than it appeared.
• A core issue of the SaaS economic model is under extreme pressure (August 2023). One way software companies can grow is by selling more of their services to customers over time. However, by last August it became clear that net retention was suffering, meaning that a lot of the organic growth that startups once relied on was vanishing.
• Will the power of data put startups at a disadvantage in the AI ​​era? (August 2023). If AI is data brought to life, do the companies with the most data win the day? And if so, where does that leave startups?
• Rainbow or storm? (September 2023). After discussing improving fintech outcomes, Anna reflected on the use of AI to fight fraud. This was an interesting twist on the usual AI and fraud narrative, which involves AI encouraging fraudulent activity rather than limiting it.
• Klarna’s financial shine is my favorite story in tech right now (November 2023). After seeing its valuation decline, Klarna did not slow down and instead continued to grow and improve its financial performance. Alex praised him for the progress.
• WeWork’s bankruptcy is proof that its core business never really worked (November 2023). What else can we say about WeWork other than that it was a weird leasing arbitrage game that never had a very good core business.
• Why am I moderately crypto-bullish on 2024? (January 2024). Before the Spot Bitcoin ETF, this column hinted that this year could be a profitable year for crypto overall. So far so good.
• Yes, the tech layoff you’re feeling rising is real (January 2024). And to close out some of our favorite, or most memorable entries, the recent wave of layoffs has been nothing but a mirage. It is a matter of regret.

our work is not done

While the exchange is closing, we still have big plans for coverage this year. Thankfully, we’re both still at TechCrunch, so you’re a long way from getting rid of us. Alex wants to work on unicorn health, the state of debt financing in 2024, and how AI will find purchase at the OS layer. Anna is curious about AI hubs beyond San Francisco, the GP investment stake, and whatever S-1 we can get.

Thanks again for reading the Exchange’s posts and newsletter. We are so grateful to have spent so much time with you on this project. onward and upward!