The venture liquidity guide.
Every way a venture fund or its LPs can turn NAV into cash: how each option works, what it costs, who has to approve it and what to watch for. Updated October 2026.
Why venture liquidity is its own problem
Venture funds hold minority stakes in private companies that pay no dividends and exit on their own timetable. Many funds now carry NAV well above what they have distributed, while LPs need distributions to meet new commitments. Buyout-style tools assume diversified, cash-generating portfolios, so they often fit venture poorly or price venture risk at a steep discount.
The options below differ on four questions: who gets the cash, what it costs, how much upside the fund or LP keeps, and who has to approve it. See them side by side.
Options covered
- Distribution financing (preferred equity)
- LP secondary sale
- Tender offer
- GP-led strip sale
- Continuation vehicle
- NAV loan
- Company-level options
Also in this guide
Distribution financing (preferred equity)
An investor advances a share of NAV and is repaid first from distributions, up to a fixed return, with no maturity.
Preferred equity sits between debt and a sale. The investor takes priority on distributions until it receives an agreed return, then drops out; the fund keeps its portfolio and all remaining upside. In the wider private markets, Proskauer describes typical pricing of 8–12% a year, a target of around 1.3x, and advances of 20–65% of portfolio value. Venture versions use lower advance rates to reflect concentrated, volatile NAV.
There are two common structures. In a holding-vehicle structure, the fund moves its portfolio into a new entity and the investor takes a preferred interest in it. In a contractual structure, the fund agrees to pay the investor a share of its proceeds, secured on the fund's proceeds account, and no assets move. The contractual form avoids company transfer consents and, for venture portfolios, the risk to QSBS treatment that a transfer can create. The same economics can be offered to a single LP against its fund interests.
| Who gets cash | All LPs pro rata at the fund level; one LP at the LP level |
|---|---|
| Cost | A fixed preferred return, usually with a multiple floor and a cap |
| Upside kept | Full, once the investor is repaid |
| Approvals | LPA authority and LPAC at the fund level; GP acknowledgment at the LP level |
| Timeline | One to three months |
Watch for
- Costs more than a sale if the portfolio falls short of its marks
- A fund-level arrangement may count as leverage for a venture-exempt adviser
- Check how the investor's return interacts with carried interest in the waterfall
LP secondary sale
An LP sells some or all of its fund interests to a secondary buyer.
The buyer steps into the LP's position, takes on any unfunded commitment and receives all future distributions on the interests it buys. Sales can cover a single fund interest or a portfolio of interests across managers. Buyers often pay part of the price later: Ropes & Gray reports that about a third of LP-led deals in the first half of 2026 included deferred consideration, mostly settling within 12 months.
| Who gets cash | The selling LP only |
|---|---|
| Cost | A discount to NAV, set by the buyer. Venture interests typically trade at wider discounts than buyout interests |
| Upside kept | None on the interests sold |
| Approvals | GP consent to the transfer; any right of first refusal in the LPA |
| Timeline | Weeks to a few months, depending on the GP transfer process |
Watch for
- The discount is permanent: if the fund later beats its marks, the buyer keeps the gain
- Deferred payment terms shift timing risk back to the seller
- GP information-sharing limits can narrow the buyer pool and widen the discount
Tender offer
A buyer offers to buy interests from any LP that chooses to sell, through a process the GP runs.
The GP arranges a single buyer, or a small group, and offers every LP the same price and terms. LPs who want liquidity sell; the rest keep their interests unchanged. Tender offers are often paired with a commitment from the buyer to a future fund, which raises conflict questions the LPAC should review.
| Who gets cash | Only LPs who elect to sell |
|---|---|
| Cost | A discount to NAV, set by the buyer, for selling LPs |
| Upside kept | Full for LPs who stay |
| Approvals | GP and LPAC; a fair process and equal information for all LPs |
| Timeline | Typically two to four months |
Watch for
- Selling LPs bear the discount; non-selling LPs get no liquidity
- Any buyer commitment to the GP's next fund is a conflict to disclose
- Low participation can leave the buyer with less than it wanted, and the process can fail
GP-led strip sale
The fund sells a slice of every position, often 10–30%, to a buyer and distributes the proceeds to all LPs.
Because the buyer takes the same proportion of every company, a strip sale avoids cherry-picking and is usually less conflicted than a continuation vehicle. In venture, each position is a minority stake with its own transfer restrictions, so the fund often sells the slice through a special-purpose vehicle rather than company by company.
| Who gets cash | All LPs, pro rata |
|---|---|
| Cost | A discount to NAV on the slice sold |
| Upside kept | On the portion not sold |
| Approvals | LPAC; company consents and rights of first refusal unless an SPV structure avoids them |
| Timeline | Two to four months |
Watch for
- Selling at a discount locks in a loss of upside on the slice sold
- Transfers into an SPV can trigger company-level consents
- For taxable LPs, gains are realized on the slice sold
Continuation vehicle
The GP moves one or more assets into a new vehicle it manages. Existing LPs choose to sell or roll.
A lead secondary buyer sets the price and funds the purchase from LPs who sell. Rolling LPs keep their exposure, usually on reset economics: new carry and fee terms in the continuation vehicle. Continuation vehicles suit one or a few strong assets that need more time than the fund term allows.
| Who gets cash | LPs who elect to sell |
|---|---|
| Cost | Often near NAV for strong assets; sellers bear any discount |
| Upside kept | Full for rolling LPs |
| Approvals | LPAC; usually a fairness opinion. In practice the manager needs to be a registered investment adviser |
| Timeline | Three to six months |
Watch for
- The GP is on both sides of the trade, so pricing and process draw LP scrutiny
- LPs face a sell-or-roll decision on a short timetable
- Single-asset vehicles concentrate risk for rolling LPs
Company-level options
Liquidity at the level of individual portfolio companies rather than the fund.
Funds can sell shares in a company tender or buyback, sell a direct stake to a secondary buyer, or sell alongside a new financing round. After an IPO, funds can sell into the market or distribute shares to LPs in kind once lock-ups expire, subject to Rule 144 for any affiliates.
| Who gets cash | All LPs, through the fund's distribution |
|---|---|
| Cost | The price available for that company, often at or near the last round for strong companies |
| Upside kept | On the shares not sold |
| Approvals | Company consent and rights of first refusal; usually no LP approval |
| Timeline | Depends on the company's own process |
Watch for
- Only works where there is demand for that specific company
- Selling the winners early can lower the fund's ultimate return
- In-kind distributions shift the timing of the sale, and its risk, to each LP
Issues that decide which options are available
General information, not legal or tax advice. Fund counsel should review any transaction.
Leverage limits for venture-exempt advisers
An adviser relying on the venture capital fund exemption must manage funds that meet Rule 203(l)-1. Under paragraph (a)(3), a qualifying fund may not "borrow, issue debt obligations, provide guarantees or otherwise incur leverage" above 15% of its capital contributions and uncalled commitments, and any such borrowing must have a non-renewable term of no more than 120 days. Multi-year fund-level financing, including NAV loans and fund-level preferred arrangements, can exceed those limits. LP-level arrangements, a single LP financing its own interest, do not count as the fund's borrowing.
LPA authority
Check the LPA's borrowing limits, restrictions on liens, permitted distributions and the definition of partnership expenses. Many venture LPAs allow only short-term borrowing to bridge capital calls; anything longer may need an LP vote.
QSBS
Moving portfolio company stock into a new partnership or holding vehicle can jeopardize qualified small business stock treatment under Section 1202 for taxable LPs. Structures that leave the stock where it is avoid the issue.
Tax-exempt LPs
Debt incurred by a fund can, in some circumstances, produce debt-financed income that is taxable to tax-exempt LPs. Timing and purpose of the borrowing matter; tax counsel should confirm the treatment.
Continuation vehicles and adviser status
Continuation vehicles generally require the manager to act as a registered investment adviser, which is one reason they are less common among smaller venture managers.
Questions to ask first
- Do all LPs need liquidity, or only some? Pro rata tools and elective tools solve different problems.
- How confident are you in the marks? Selling at a discount wins if NAV falls; fixed-cost financing wins if it holds.
- How concentrated is the NAV? One dominant company points toward a continuation vehicle or a company-level sale.
- Is the manager a registered adviser or venture-exempt? That decides whether fund-level leverage is available.
- What does the LPA allow on borrowing, liens and distributions, and what needs an LP vote?
- Which LPs are taxable, and which hold QSBS-eligible positions through the fund?
Sources
- 17 CFR 275.203(l)-1, venture capital fund defined (eCFR)
- Ropes & Gray, secondaries update, September 2026
- Proskauer, Preferred Equity: Flexible Financing Solutions
- First Citizens Bank, NAV loans and lender financing
Yantacaw Capital provides distribution financing to venture funds and their LPs. This guide also covers options we do not offer.