Strategic View: In a landmark GP-led secondary deal, Sequoia Capital and NEA have formed a “continuation vehicle” club deal. The new fund, capitalized by a club of secondaries buyers like StepStone and LGT, has “bought” a prized, late-stage AI company from the VCs’ older funds, providing liquidity to old LPs and more runway for the asset.
Full story: The venture capital world has finally embraced the GP-led* secondary. Sequoia and NEA, two of Silicon Valley’s most elite firms, had a problem. They held a “trophy asset”—a $10 billion AI company—in a 2017-vintage fund that was nearing the end of its life. Their LPs* wanted their money back, but the company wasn’t ready to IPO.
The solution? A “continuation vehicle” (CV) structured as a club deal. The two VC firms created a new, single-asset fund. This new fund’s sole purpose was to buy the AI company from the old fund. Where did the money come from? A “club deal” of specialized secondaries buyers, led by StepStone and LGT Capital, who wrote the multi-billion dollar check.
This is a “win-win-win.” The old fund’s LPs get a massive “distribution,” cashing out at a high valuation. The VC firms get to “keep” their best asset and manage it for another 3-5 years, earning new fees and a “second bite” of the upside. And the secondaries buyers in the club get direct, concentrated access to one of the world’s best, pre-IPO AI companies.
This Q2 transaction is a seismic shift. It proves that the most sophisticated tool in private equity (the CV) is now being adopted by top-tier VCs. It solves the “liquidity problem” and will unlock a wave of similar “VC-led club deals” as firms seek to hold their winners longer.
*GP-led: General Partner-led (i.e., the fund manager). *LP: Limited Partner (i.e., the investor in the fund).
Summary: The Sequoia/NEA “Continuation Vehicle” is a watershed moment for venture capital. It matters because it proves that elite VCs are now using GP-led club deals to solve their liquidity crunch. They can now sell their best assets to themselves, giving old investors cash and new investors access to trophy assets.
Source: The Information
