Tiger Global has been working with Lexington Partners on a structured process to offload commitment obligations to unfunded LP stakes in newer, early-stage venture funds made through partner capital, three sources told affiliate Buyouts.
The commitments came from individual partner capital, rather than from one of Tiger’s funds or the balance sheet, a source said.
Tiger’s partners have committed to venture funds from Better Tomorrow Ventures, Chapter One Ventures, Maple VC and Moxxie Ventures, according to a report by The Information.
“Partners at [Tiger] have committed $1 billion of their own cash to invest in seed funds that focus on backing the youngest startups, said a person with direct knowledge of the matter,” The Information reported in March. “Under the initiative, the partners would invest a little over $300 million in the funds every year, the person added.”
Tiger’s deal with Lexington, which has been in the market since at least earlier this year, is separate from the widely reported “strip sale” Tiger has been running to sell stakes in direct assets. The LP stakes deal, which is expected to be about $400 million, has been approaching final close with Lexington Partners as the sole investor, sources said.
Spokespeople for Tiger Global and Lexington declined to comment.
Details are vague, but in general Lexington agreed to take over unfunded commitments in the LP stakes, which are said to be 50 percent or more uncalled, sources said. Lexington will make future capital calls, and any proceeds from the funds (including from funded commitments) will flow to Lexington up to a threshold, and then flow to Tiger, sources said.
The return for both firms will depend on how assets in the funds perform in the future, though Lexington also will collect a preferred return each time it makes a capital call, minimizing its risk, the sources said. Lexington is paying very little – possibly nothing – to take over the unfunded stakes, a source said.
“It’s hyper-diversified, with a lot of unfunded commitments,” said a secondaries market professional who has seen the deal. “Lexington makes money off the capital calls, they pay the unfunded portion … if the unfunded goes into a good environment and they do well, it’s a win-win for everyone.”
It’s not unusual for private equity or venture managers to spend some of their wealth on making LP commitments to funds they like. In this case, Tiger partners committed to newer funds to get access to deal flow the larger fund may not have seen, sources said.
Tiger has turned to the secondaries market to try and generate liquidity for LPs in older funds as it works to raise its next flagship pool targeting $5 billion. The firm earlier this year lowered the target on Fund XVI from $6 billion to $5 billion, already a steep decline from the prior flagship, Wall Street Journal reported in February. Tiger reported raising just over $2 billion for its 16th fund from 283 investors, according to a Form D fundraising document filed earlier this month.
Tiger ranked second on the most recent VCJ 50 list, Venture Capital Journal‘s ranking of the world’s 50 largest venture firms based on combined fundraising from the start of 2017 to mid-2022. Tiger raised nearly $27 billion during that period, behind Insight Partners, which collected nearly $39 billion.
Tiger is also working with Evercore on a large “strip sale” of stakes in start-up assets. The total size of the transaction could be variable, depending on what trades. As well, a sale may not happen if the discount demanded by buyers is too steep, Buyouts previously reported.
Secondaries pricing on VC funds fell in a range of 63 to 68 percent of net asset value in the first quarter, according to a quarterly secondaries volume report from PJT Park Hill.