New Enterprise Associates, the Silicon Valley venture capital firm, is gearing up to sell a large number of its investments in startups.
The Wall Street Journal, citing people familiar with the discussions, reported that with a lack of IPOs, New Enterprise Associates is looking to sell about $1 billion of its investments in around twenty startups to a new firm that it wants to launch. The investments are largely in companies that it invested in around eight to ten years ago. The paper noted that if New Enterprise Associates completes the transaction, it would mark the largest secondary sale by a VC firm — and underscores the need to give investors returns amid a drought in the IPO market.
The new company would operate independently and would be run by New Enterprise Associates general partner Ravi Viswanathan. Some of the capital would be kept so it can buy shares from employees and make follow-on investments. The new company is expected to be in charge of the investments of the companies, which isn’t typical in secondary offerings in which the VC transfers ownership in the company but continues to be in charge of the investments.
The deal hasn’t been finalized, and the size of the stake sales could change. It’s not clear who the potential investors in the new fund will be, but New Enterprise Associates could opt to maintain an ownership stake in the new business. Since it will be similar to New Enterprise Associates, the paper noted there could be conflicts between the two during deal talks. VC firms tend to launch new funds about every three years, and those investing in startups aim to get a return on their investments in about ten to twelve years. The main way to make money off the investment is via an IPO — or if the startup company gets bought. But with more companies opting to remain private for longer, the VCs are limited in how they can cash out, and thus the New Enterprise Associates initiative.