Wed, 8 June 2022
Venture Fund Defaults
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
In a market recession, it’s often the case that limited partners - called LPs - are unable to fulfill their capital commitments to venture funds.
For venture funds encountering this issue, the first step is to open a dialog with the LPs about the capital needs and the LP’s ability to provide the funds.
Explore potential options such as lines of credit both for the fund and the LP.
Fund managers should discuss with the LPs about the strategy tradeoffs between investing in new startups and supporting existing investments.
Fund managers should reconsider the valuation methods as the market environment has changed.
Fund managers could also approach the LPs about extending the fund timelines given the new market situation.
For those still raising funds, consider updating existing offering documents to adjust the financial projections and risks.
Fund managers should also consider the pace of new investments in light of committed follow-on investments.
Finally, fund managers should review any potential clawback situations and adjust accordingly.
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