Understanding the Liquidity Challenges for Venture Capital Investors

In recent years, the slowdown in initial public offerings (IPOs) has created a significant challenge for limited partners (LPs) invested in venture capital funds: a lack of liquidity. For wealthy individuals and small family offices managing substantial assets, this issue has been particularly pressing. When funds are locked into venture capital investments, it becomes difficult to access cash returns when needed most. This problem was acutely felt by entrepreneur Mike Hurst, who found himself navigating a similar predicament after selling his payments startup, Exactuals, to City National Bank in 2018.

The Struggles of Managing Venture Fund Commitments

Following the sale of his company, Hurst allocated a significant portion of his proceeds to tech stocks and venture funds. However, the tech stock market crash in 2022 left him with insufficient liquid assets to meet ongoing capital calls from venture funds. As firms continued to request additional investments, Hurst was caught between fulfilling his commitments and avoiding risky financial maneuvers like taking on margin loans or selling undervalued stocks.

This personal experience inspired Hurst to develop a solution that would address the liquidity challenges faced by LPs. His vision led to the creation of Turbine, a debt platform designed specifically for limited partners in private equity and venture capital.

Introducing Turbine: A New Solution for Liquidity

Turbine officially launched out of stealth mode, announcing that it had raised $22 million in equity funding. The round was co-led by Alpha Edison and TTV Capital, with participation from Fin Capital, B Capital, and Sozo Ventures. Additionally, the company secured up to $100 million in debt financing from Silicon Valley Bank to support its loan-making operations.

The platform offers LPs a way to unlock liquidity by using their stakes in venture funds as collateral. This approach mirrors how a home equity line of credit leverages the value of a home or how a margin line uses stock holdings. By providing access to funds without requiring the sale of their stake, Turbine aims to preserve the future upside potential of an LP’s investment.

Why Turbine Stands Out

Gardiner Garrard, co-founder and managing partner at TTV Capital, expressed immediate enthusiasm for Turbine when Hurst pitched the concept. Garrard highlighted the frequent requests he received from LPs seeking liquidity but noted the lack of viable options. While selling shares in a portfolio company on secondary markets could provide some relief, doing so would mean sacrificing long-term gains to meet the needs of a single investor.

Another alternative—selling the LP interest itself—often comes with significant discounts, resulting in a loss for the investor. Turbine addresses these challenges by allowing LPs to borrow against the appreciated value of their fund positions. For instance, if an LP’s initial $3 million investment has grown to $10 million, they can use this valuation as collateral for a loan.

Understanding the Costs and Benefits

While Turbine’s loans come with an interest rate of around 9%, which is higher than traditional borrowing options, Garrard argues that this rate is still more favorable than the costs associated with selling stakes on secondary markets. Selling prematurely often means accepting a discounted price, which can erode the value of the investment.

Turbine’s initial customers include the five venture firms that participated in its equity raise. These firms’ general partners are already offering their LPs access to Turbine’s credit solutions. Following the launch, Hurst plans to expand the platform’s availability to a broader range of venture capital funds.

The Future of Liquidity in Venture Capital

Garrard’s excitement about Turbine underscores the growing need for innovative solutions in the venture capital space. “I couldn’t believe we didn’t have something like this for our LPs before,” he remarked. With Turbine, limited partners now have a tool to manage their liquidity needs while preserving their investments’ long-term potential.

As the venture capital landscape continues to evolve, platforms like Turbine are poised to play a critical role in addressing the liquidity challenges faced by investors. By bridging the gap between locked-up capital and immediate financial needs, Turbine offers a promising path forward for LPs seeking flexibility and stability in their portfolios.