4 ms·
Why do they "need" to liquidate in the next year or two?
by gjem97 9y ago
Why do they "need" to liquidate in the next year or two?
- cft 9y agoProb because the lifetime of the fund that invested is coming to an end? It's usually 10 years
- gjem97 9y agoWhat is the lifetime of the fund? Just the amount of time that the VC firm has said they would have all the money (and more!) back to the limiteds? Clearly that's not a hard deadline, right?
- pge 9y agoIt is a hard deadline because it is in the deal documents when the fund is formed. It is relevant because the fund management is guaranteed fees for that period. Extending it is usually straightforward, but the compensation of the fund management team during the extension is open for negotiation.
- philsnow 9y agoVC fund lifetimes put a hard time frame of <= 10 years on required liquidity, forcing founders (who have given up board seats to get those investments) to do things they wouldn't ordinarily do. It's a pretty perverse incentive, and I see the attraction of not taking outside money.
- surfearth 9y agoWhile most venture funds have a 10 year term, almost all are extended for at least an additional two years. The GP, together with the LP's, have lots of flexibility to extend beyond then if necessary, although there are typically negotiations around fee reductions and clarifying the path to liquidity. I have no insight into this particular fund, but it is very unlikely that it is purely fund term motivating Benchmark's desire to exit.
- prostoalex 9y agoIt is perfectly reasonable to distribute illiquid shares of a private company at the end of the fund lifetime.
- calpaterson 9y agoFrom crunchbase (https://www.crunchbase.com/organization/benchmark/investments https://www.crunchbase.com/organization/benchmark/investment...) it looks like Benchmark made three investments in Uber, the last of which was in 2013. The funds that VCs raise normally only operate for a specific term of eg 5 years, so now is the kind of time they will want to get out. Incidentally from what I can make of their investments in Uber on crunchbase, they need Uber's market cap to be $31bn just to break even on their investment (13% of the business for $411m). That's probably what they're fighting for.
- iamtherhino 9y agoI think you dropped a 0. 0.13*31BN = ~$4BN, still a 10X return if they've invested $400M.
- prostoalex 9y agoIt's likely not distributed evenly between their three investments (and perhaps three separate funds), and with the late-stage checks typically being larger, it might impact the ROI of that late-stage fund more severely. I don't really think the urgency is there, though, VCs have been dealing with illiquid companies for decades, if they need to wind down the fund, they will either distribute the shares directly to the LPs or create a placeholder SPV and distribute partnership interests.
- calpaterson 9y agoYes I did! Thanks. Can't edit it now, unfortunately.