Part II: Just closed a new fund and already an investor wants out?! Low-funded secondary case studies

These case-studies originally appeared in PEI’s Secondary Investor. This is the second-piece in a 2-part series focused on Low-Funded Secondaries. Read the first part here.

In a recent post I described how the ‘low-funded secondary’ can help GPs in the long run, when a very small percentage of a fund has been called. To provide a little more color on low-funded secondaries, I will briefly describe two low-funded transactions that include elements of deals we have completed including the motivations and deal terms. As noted in the last post, given that these transactions look more like a primary fund commitment, Vintage did these investments via our VC fund of funds and not our secondary funds.

Case 1: LP Bankruptcy

A large institution had a $10 million commitment to a fund and had paid in roughly 30%. The institution was going through a bankruptcy and was looking to get out from under it obligations, which in the case of this investment was $7 million in future capital to be paid in. Vintage was very familiar with the fund, its history, partners, etc. and although it was still early in the life of the fund, there had been a number of investments already completed which we could assess.  The fund was also very familiar with us although we had not been an LP in prior funds, but knew we knew the team and portfolio and could transact quickly, especially given subsequent calls that were going to be made in the near term and the meaningful size of the commitment (and outstanding capital) relative to the fund size. Given the deal dynamics, the seller was most interested in getting out from under the unfunded obligation, so what we did was a structured deal with the seller, where by we would pay the commitment going forward and split some proceeds with the seller after a minimum guaranteed return.

Case 2: Quasi Key Person Event

An institution had recently committed to a GP’s second fund and shortly after, with the fund called roughly 15%, one of the partners, who was their main relationship, left for personal reasons. While this did not trigger an actual key person event according to the agreements, the LP was not comfortable continuing. In addition, there was an immediate 10% call that was open that needed to be funded. Vintage was already an LP in the fund via our fund of funds, knew the team well, and also felt it was one of the leading VC funds based on its prior fund and DD we had completed not that long before for the primary commitment. As a result, we offered to pay the seller their amount invested and take on the unfunded going forward including the 10% immediate call. For the GP, again, this was a very smooth solution as we were already GPs who knew the fund and team well and could execute quickly.