Venture capital is having an even bigger year than its record 2020, and StepStone is hoping to get in on a larger piece of the action by acquiring Greenspring Associates, a Maryland-based investor with $17 billion in AUM.
Greenspring, which operates as a venture fund of funds and makes direct investments in companies, joins StepStone’s diversified private markets offering, which includes its PE, secondaries and growth-stage venture units. The transaction bolsters StepStone’s private market offering to $104 billion.
Scott Hart, chief executive of StepStone, noted during a Wednesday call announcing the transaction that over the last 10 years, global venture capital fundraising has seen a 15 percent compounded annual growth rate and deal activity has increased at a 20 percent compounded annual growth rate, while median venture capital IRR is outpacing broader private equity buyout returns by nearly 500 basis points.
“Given that favorable backdrop, many investors, including StepStone clients and prospects, are seeking to increase their exposure to venture growth in the broader innovation economy,” Hart said.
The agreement between the firms means StepStone acquires Greenspring for $725 million, which is comprised of $185 million in cash and $540 million in StepStone equity in a combination of Stepstone Class A common stock as well as a new Class C partnership unit, which will be convertible into Class A stock over an unspecified amount of time.
The deal is set to close later this calendar year. Greenspring managing partners Ashton Newhall and Jim Lim will be added as partners to the firm’s private equity practice.
Newhall, son of New Enterprise Associates co-founder Chuck Newhall, co-founded the firm in 2000 with Rupert Montagu. Greenspring was also an investor in NEA funds. It was known as Montagu Newhall Associates before changing its name to Greenspring Associates in 2010. The name change coincided with a surge in business a decade ago as its portfolio, including such investments in Bravo Health, ExactTarget and ScanSafe, began to be realized.
StepStone, which already had a global footprint, will add about 130 Greenspring employees to its roster, giving it 20 offices worldwide.
StepStone said that the combined team of more than 70 venture capital and growth-equity professionals working across the US, Europe and Asia would manage about $22 billion of venture and growth-equity assets.
StepStone’s portfolio includes investment in funds managed by Vertical Venture Partners, DN Capital, .406 Ventures and Uncork Capital, among others, according to the LP database from affiliate publication Private Equity International.
Greenspring has invested in funds managed by such venture firms as Bullpen Capital, Greycroft Partners, Ridge Ventures and OpenView, according to the LP database.
StepStone addressed how some of its strategies will align as it works to integrate the two businesses. For one, Greenspring and StepStone generally handle investments differently, and they won’t rush to turn Greenspring into a dominant co-investor, the firms said during the call this week.
“Greenspring is less likely to invest alongside a single co-investment partner [in the future] the way we often do at StepStone, but more likely to lead or price a financing round,” Hart said.
“That is price-specific to the venture strategy, not unlike what we had seen in our venture business over time,” he added.
The firms plan to integrate much of the decision-making by way of a joint investment committee, where professionals from each firm will evaluate venture and growth opportunities going forward.