Icon charts a strategy for an era of capital abundance

With tens of billions of dollars chasing unicorns and unicorn wannabes, venture capital is in an evolving world.

Deal competition is up, valuations have soared, investor differentiation consumes more time and exit timelines stretch for extra years as capital extends the private-company runway.

Firms that cut their teeth at a time of capital scarcity find themselves adjusting to an era of big wallets.

Adapting was the goal at Icon Ventures as it weighed the impact of mega funds. After a “great deal of soul searching” the Silicon Valley firm settled on an unusual course of action, as previously reported. It reopened its latest fund to more capital and turned to the secondary market for LP liquidity.

It is a course of action that may serve as a guide to other firms as they manage their partnerships in the months and years ahead.

“This is an interesting time for the venture business,” said Managing General Partner Joe Horowitz in an interview. “It’s easy to fall out of relevancy.”

Icon, which focuses on Series B and C rounds, rejected shifting its investment model to new areas or stages, according to is blog post at the time. Instead, after talking with LPs, it decided to reopen its $265 million sixth fund over the summer and add $110 million to expand available capital to $375 million.

“Based upon the data we track, over the last few years our target Series B financings have risen from $20 to $25 million and Series C financings from $30 to over $40 million,” the firm stated in the post. The fund needed “to be properly sized to today’s market opportunity.”

Horowitz said the larger fund enables the firm to lead more deals and put more capital in follow-on rounds with winners.

He added that today’s heavily capitalized market has changed the way Icon does business. It casts a broader net, sees more deals and is more discriminating as an investor. At the same time, its investment pace has increased.

“We can’t afford to make as many mistakes,” he said. And “we have to work harder for entrepreneurs to understand the quality of the investor rather than price alone.”

To provide liquidity for a key LP, Icon also arranged a $100 million secondary-market transaction in July. The deal took place at a “very modest discount” and enables Icon to remain the GP in the fund, Horowitz said.

It enable LP Jafco to sell its holdings in fund IV and fund III, amounting to six portfolio companies, to Lexington Partners, which also joined the fund expansion.

The bottom line is that as the VC business changes, firms need to change with it.