Goldman Sachs has emerged as the lead buyer in an innovative secondary deal, being run by New Enterprise Associates, that is among the largest-ever such transactions in the venture capital world, three sources told VCJ affiliate publication Buyouts.
The transaction is one of a group of deals involving high-profile GPs finding ways to deliver liquidity to investors in older funds and manage their portfolios.
Such activity, common in private equity, is rarer in venture capital.
While Goldman is the lead buyer, another firm that is part of the buyer syndicate forming around the deal is Hamilton Lane, the sources said.
Several other buyers are expected to take smaller stakes in the deal, which overall could be valued at more than $1 billion, the sources said.
Lazard is working as secondary adviser on the deal, one of the sources said.
Spokespeople for Goldman Sachs, NEA and Hamilton Lane declined to comment. A spokeswoman for Lazard did not return requests for comment.
NEA is carving out a chunk of its portfolio and moving the investments into a newly created firm that will be managed by an NEA partner, sources said, confirming a Wall Street Journal report from May.
Capital from the deal would be used to buy about $1 billion of stakes in about 20 startups, as well as for follow-on investments or to buy shares from employees, according to the WSJ report, which also cautioned the deal was in the early stages and could change.
One source said the deal was driven partly by certain executives’ desire to spin out and form their own shop. The new firm that will house the startup stakes would be run by NEA General Partner Ravi Viswanathan, a former Goldman Sachs executive who will leave the venture firm as part of the process.
NEA, formed in 1977, last year raised $3.3 billion in commitments for its 16th fund.
The firm’s portfolio includes investments in Groupon, Jet, Salesforce and Workday.
NEA 15, which closed on $2.8 billion in 2015, was generating a 19.5 percent internal rate of return since inception as of Sept. 30, 2017, according to performance information from California State Teachers’ Retirement System.
While not as prevalent as it is in PE, GP-led secondary activity does take place in VC. The deals are smaller and so may not get as much attention, one source said.
“There’s not that many large venture funds,” the source, a secondary-market professional, said. “It’s a reflection of where the capital is invested and the scale of that capital.”
That may be changing, however, as private capital floods the market, pushing off IPO activity and extending investment hold periods.
“I think we’re going to see a lot more high-quality firms doing GP restructurings,” Ken Sawyer, a managing director at Saints Capital, told VCJ earlier this year. “It’s happening in the private-equity world. It’s going to happen in the VC world to a greater extent.”
On the private equity side, another deal involving a high-profile manager occurred last year. Warburg Pincus, also working with Lazard, sold $1.2 billion of Asian investments from its 11th fund to secondary buyers led by Lexington Partners. Goldman Sachs also participated in the transaction. Warburg continues to manage the investments.
These processes, known as GP-led deals (as opposed to LP institutions like public pensions selling portfolios of fund stakes), are helping drive secondary volume to record levels.
First-half deal volume came in around $32 billion, up 18 percent from the year-earlier period, Evercore said in its secondary volume report. Total volume last year came in at an estimated $54 billion, Evercore said.
GP-led processes like fund recaps hit an estimated $7 billion in the first half, representing a record 26 percent of total secondary volume so far this year, Greenhill Cogent said in its first-half volume report.
Action Item: Check out NEA’s Form ADV here: https://bit.ly/2Oeo9AF