The article about evergreen funds [in the October issue of Venture Capital Journal] by Michael Fitzgerald was timely and provocative. The venture business has too long been forced to use archaic LP structures that are spectacularly ill-suited to long-term VC investing. Statistics have consistently shown that companies undergoing IPOs and M&As are getting much more mature. As an investor in funds, we’ve been trying to encourage our GPs to consider alternative structures, though admittedly with little success.
Our view is that if a VC builds a great asset that continues to appreciate in value over time, why be compelled to realize it via sale or distribution because of a time constraint forced on it by the LP structure? In addition, companies are often poorly served by accessing public markets prematurely, when an extra couple of years of private ownership could make all the difference in terms of growth and maturity.
(We have long been disinterested in whether a good asset is public or private, as long as we’re not forced to lose the economic benefit of it.)
One possible benefit from using an evergreen structure is that being forced to see venture capital as a truly long-term undertaking could dissuade “tourist” LPs from investing in venture, so avoiding the over-funding problems that have dogged the industry for several years.
We’ve never invested in funds on the basis of economic terms, and we aren’t going to invest in funds simply because their structure is different, however it is a debate worth having. The industry, along with the rest of the financial sector, is in a state of flux at the moment, but this could be the time for VCs to reinvent their business to make it longer term, more value accretive, and more aligned with investor interests.
Head of Venture Capital and Equity Long/Short Investments
The Wellcome Trust