IPO Slowdown Leads Silicon Valley Venture Giant NEA to Sell $1 Billion Worth of Startup Stakes
New Enterprise Associates, certainly one of Silicon Valley’s largest venture-capital companies, plans to unload a giant chunk of its startup investments in response to a dearth of preliminary public choices, in keeping with folks acquainted with the discussions.
The agency plans to promote roughly $1 billion price of its stakes in about 20 startups to a brand new agency it’s looking for to create, one of many folks stated, in an effort to return capital to its limited-partner traders. These corporations will largely be those who initially raised cash from NEA about eight to 10 years in the past.
If accomplished, the so-called secondary sale could be one of many largest ever from a enterprise agency, in keeping with analysts, reflecting the business’s stress to ship returns to its traders amid an period of traditionally fewer IPOs.
The brand new automobile would function independently from the agency, the folks stated. One of many agency’s normal companions,
would depart NEA to run it. A few of the capital could be reserved to make follow-on investments or to purchase shares from workers, these folks added.
The brand new agency is anticipated to handle the investments within the underlying corporations, a departure from extra widespread secondary offers the place enterprise companies switch the possession curiosity within the startups however proceed to handle them.
The folks acquainted with the deal cautioned that it hasn’t been finalized, together with the dimensions of the transaction. Because the new agency could be intently associated to NEA, one problem might be managing attainable conflicts that might come up as the 2 entities hash out the value to be paid for the property, analysts say.
Potential traders within the new fund couldn’t be realized. NEA could maintain an possession curiosity within the new automobile, however that continues to be to be labored out, one of many folks stated.
NEA, based in 1977, is a huge in Silicon Valley. Final yr it raised the biggest U.S. enterprise fund on report at $three.three billion, and it at present has greater than 300 energetic investments in corporations throughout tech and well being care. It’s recognized for investments in, amongst others, human-resources software program maker
day by day offers firm
and networking agency
Enterprise companies sometimes increase new funds each three years or so, each investing in startups with the intention to return capital to their traders and wind down after 10 to 12 years.
The enterprise funds make their positive aspects largely when startups go public or get acquired. However in recent times, corporations are selecting to remain personal and unbiased for longer intervals, limiting enterprise traders’ capacity to money in positive aspects for the restricted companions of their funds.
All through the 1990s, effectively over 100 venture-backed corporations on common went public every year and greater than 200 yearly through the dot-com increase. However over the previous decade, that quantity has averaged about 50 a yr as there are fewer small IPOs.
NEA’s current funds largely rank among the many second quartile of enterprise funds by way of the a number of of capital distributed again to restricted associate traders, when evaluating return knowledge accessible publicly with mixture knowledge compiled by consulting agency Cambridge Associates. As a result of NEA’s funds are far bigger than most of its friends, hefty returns are usually tougher to generate.
Its 2012 fund lately acquired a lift after Salesforce.com Inc.’s $6.5 billion acquisition of software program firm MuleSoft Inc., through which the fund held shares.
Mr. Viswanathan labored in
Goldman Sachs Group
private-equity division, as co-head of its expertise observe, making him a match to run the brand new agency that’s envisioned, the folks acquainted with the matter stated.
One other normal associate,
plans to depart NEA as effectively, in keeping with folks acquainted with the matter. He’s planning to affix a company to begin a brand new enterprise arm, stated two of those folks.
—Katie Roof contributed to this text.
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