Israel’s Vintage Investment Partners discusses its approach for secondaries

By Alex Derber, VCJ Correspondent

While new venture funds continue to pop up regularly, the secondaries market remains relatively unexplored outside a collection of longstanding firms.

Secondaries are a niche market partly due to the expertise needed to assess the risk-return profiles of stakes in startups, or of the underlying portfolios attached to VC fund LP holdings that are up for sale.

Herzliya, Israel-based Vintage Investment Partners started life in 2003 by amassing research on the portfolios of a number of funds as a way to direct the investment of its debut fund.

“If someone wanted liquidity, we could give them a binding offer within two days because we had done most of the due diligence in advance,” says Alan Feld, founder and managing partner of Vintage.

Israel Secondaries Fund Profile VC
Alan Fled, founder and managing partner, Vintage Investment Partners. Photo courtesy of the firm.

Since then, the firm has raised another three secondaries funds, the most recent of which, Vintage X, closed in August at an over-subscribed $215 million.

Last year, the technology investor also finalized its fourth fund-of-funds, at $200 million, while its second co-investment fund raised $125 million in early 2015.

Vintage X will follow the strategy of its $161 million predecessor secondaries fund and target direct and indirect investments, mainly in Europe and Israel, but also selectively in the United States.

When it picks up stakes in companies directly, Vintage leans towards B2B technology businesses at mid- to late-stage, while its investments in funds contain a broader range of applications and company maturities in venture and growth capital funds.

Feld wouldn’t discuss current secondary deals due to non-disclosure agreements, but he says that Vintage has invested in such areas as cybersecurity, cloud infrastructure, SaaS and storage.

It may also take a little time before the new secondaries fund starts investing, as its predecessor retains a little dry powder.

Commitments to Vintage X came overwhelmingly from U.S., Canadian and Israeli institutional investors, including pension and insurance funds, university endowments, foundations and family offices. Most were repeat investors from the firm’s other funds.

And while its latest fundraising was a record for the firm, Vintage wants to bring more than money to the table.

“GPs are wondering what LPs can do for them,” Feld says. “There is a lot of money out there today and really good funds are well over-subscribed and that’s also applicable to secondaries.”

He also notes that investors in promising startups often have priority when others seek to sell their stakes, meaning that a secondaries buyer must “give them a very good reason to waive the right of first refusal and let you be an investor.”

Vintage’s pitch to GPs and existing investors rests on the database of companies it has continued expanding since its foundation, which it uses to connect those companies – even ones not in its direct or indirect portfolios – with potential customers.

“We do this so that GPs globally and companies can see that they can take money that will open doors,” Feld says.

When opportunities are presented, Vintage estimates the range of exit values per company and how much more needs to be invested, and then calculates the value to give a target return.

Feld stresses that the assessment of company quality is far more important than any discount, which can be meaningless if it’s for a business that doesn’t merit its valuation.

“We’ve made mistakes where we didn’t read the technology trend right, or the ability of management team to scale the business right, so understanding the underlying portfolio companies is really crucial,” he says.

This understanding has become even more important as inflating venture rounds and rising valuations have fed through to higher secondaries pricing, which Feld describes as the “biggest challenge” in the market today.

“It’s not about understanding what is hot today but having a thesis about what is going to be important over time,” he concludes.

Action Item: More info on Vintage Investment Partners available on their website at http://vintage-ip.com/

Alex Derber is a U.K.-based contributor. He can be reached at alex@derbereditorial.com.

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