We advance a portion of a venture fund's NAV in cash today. We're repaid only from the fund's future distributions, ahead of its partners, up to a fixed return. The fund keeps its portfolio and its upside.
A conservative share of NAV, set by portfolio maturity, concentration and how recent the marks are.
The fund distributes the advance to all limited partners pro rata. No LP has to sell, elect or roll.
As companies exit, an agreed share of the fund's proceeds comes to us until we've received our preferred amount.
Our claim ends. Every later dollar, including all of the portfolio's upside, goes to the fund's partners.
Set deal by deal after diligence.
| Advance | A minority share of NAV, sized to portfolio maturity and concentration |
|---|---|
| Cost to the fund | A fixed preferred return: the greater of an IRR hurdle and a multiple of the advance, with a cap |
| Source of repayment | Fund distributions only, through an agreed sweep |
| Recourse | None to the GP or LPs. Limited to portfolio proceeds |
| Maturity | None, and no default for slow exits. Terms step up if the advance is still outstanding after an agreed period |
| Valuation covenants | None. Markdowns alone trigger nothing |
| Structure | A contractual purchase of a share of fund proceeds, secured on the proceeds account. No transfer of portfolio securities, ROFR waivers or company consents |
| Upside | Stays with the fund. An optional performance participation can lower the base return |
| Approvals | LPA authority and LPAC consent. We provide a disclosure package for LPs |
The GP signs once and every LP receives cash pro rata. Suited to funds whose managers are SEC-registered advisers.
Funds advised by venture-exempt advisers face a leverage limit under Rule 203(l)-1(a)(3), so the LP-level structure usually fits them better. See the FAQ on the venture-exemption leverage limit.
A single LP receives cash against its interests in one or more venture funds, without selling them. The GP acknowledges the arrangement; no LP vote is needed.
Works for LPs in funds of any manager, including venture-exempt advisers.
Two ways to raise the same $60MM in cash for LPs of a $100MM fund now carrying $300MM of NAV: a strip advance of 20% of NAV, or a sale of 25% of LP interests at 80% of NAV. Figures are the total LPs give up over the fund's life.
| Fund's ultimate value | Secondary sale at 80% of NAV | Preferred strip (illustrative) |
|---|---|---|
| $450MM | $112.5MM | $84.3MM |
| $400MM | $100MM | $84.3MM |
| $300MM | $75MM | $85.4MM |
| $200MM | $50MM | $88.4MM |
The strip costs LPs less whenever the fund realizes more than about $337MM, roughly 112% of its current NAV. A secondary sale costs less if the portfolio falls short of its marks. Assumes exits spread evenly over years 3–6 and a 100% sweep. Run your own numbers. Illustrative only.
Also described as distribution financing, NAV preferred equity, a preferred distribution facility, venture NAV financing or a distribution strip. Compare every venture liquidity option.