NEA completes secondary sale of 26 portfolio companies for about $1 bln

New Enterprise Associates has completed a roughly $1 billion secondary sale of 26 portfolio companies in a deal designed to bring early liquidity to limited partners in four of its funds.

The transaction, done at a small discount, transferred the companies to NewView Capital, a firm managed by former NEA General Partner Ravi Viswanathan and backed by LPs, including Goldman Sachs and Hamilton Lane.

The deal is a milestone in venture capital in a number of ways but largely because it helps blaze a new path to secondary market liquidity for an industry where exits have been slow and companies have remained private longer. In the past, single LPs would turn to the secondary market to unload a position or several holdings.

The promise of an established method for a large-scale transfer of assets involving multiple LPs, and the restructuring of older funds to provide distributions, would prove useful and already has begun drawing more interest inside firms.

“It’s never been done at this scale in venture,” said Viswanathan, who is a managing partner at NewView. “People view this as something that could become more mainstream in venture over the next five to 10 years.”

Among the 26 mid- and late-stage companies involved in the transaction are 23andMe, Duolingo, Acquia, Canopy, GumGum, Forter, ClearMotion and Uber, according to NewView’s website. NewView’s maiden fund, which closed several weeks ago, raised $1.35 billion to both cover the transaction and provide roughly $350 million of follow-on financing and new investments.

Viswanathan said the deal involved a third-party assessment of the companies’ value and that pricing in the deal was agreed to at “not a large discount.” He declined to be more specific.

Buyouts Insider, publisher of VCJ, reported in October that pricing was at a low 90 percent of net asset value.

The portfolio is made up of high-quality companies with material upside that require more time and resources, Viswanathan said. NewView has taken board seats at some of them.

The NEA funds selling the companies include primarily New Enterprise Associates 12 from 2006, New Enterprise Associates 13 from 2009, and New Enterprise Associates 14 from 2012, but also New Enterprise Associates 15 from 2015. The funds will continue to exist at the firm with their remaining portfolio companies.

For NEA, the transaction beings several advantages. Along with enhancing distributions that might have taken several more years to achieve, it reduces company count in the funds, lessens board responsibilities at the firm and provides a mechanism for portfolio management.

“There’s a lot of congestion on the road to liquidity,” said NEA Managing General Partner Scott Sandell in a press statement. “Market dynamics are compelling companies to stay private longer, which creates growing demand for follow-on dollars and stretches investor holding periods to a decade or more.”

The deal also brought flexibility to LPs. Among NewView’s LPs are investors who were original investors in the four NEA’s funds and who decided to continue backing the portfolio by participating in the NewView fund.

Viswanathan said he plans to raise additional funds to continue seeking assets through fund restructurings.

“I think there is a significant opportunity,” he said.

Action Item: The website for NewView Capital is newviewcap.com.