Milk Street Ventures
Boston              San Francisco               London

Secondary Direct Investments in Venture Capital and Private Equity

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Transaction Profile

 

We seek investment portfolios across the United States and Europe that in their aggregate hold the promise of future investment returns. 

 

Our primary focus is on transactions with venture capital and private equity funds as they seek liquidity for a portion or all of their portfolios. Generally, General Partners will shepherd each portfolio company from initial investment to ultimate liquidity within the set term of their fund. This is however not always the optimal solution for fund managers, their investors, or portfolio companies. In certain instances, the transfer of illiquidity can unlock incremental value.  Examples include:

 

  • Late bloomers:  Some portfolio companies do not reach their full exit potential by the time the investing fund has reached the end of its term. Selling the remaining investments of an “end-of-life” fund can provide an attractive solution for both General and Limited Partners. Value is frequently created by extending the investment gestation period of entrepreneurial growth companies.
  • Attention shifting:  General Partners with a large and growing stable of funds under management may want or need to shift their attention to the investment process of more recent funds. The internal rate of return on the oldest fund is unlikely to improve noticeably from continued involvement.
  • Liquidity considerations:  As the industry matures and assets are more deliberately managed there is an increasing desire to provide liquidity at a pace that falls in line with life cycle expectations and funding considerations. Selective secondary sales can help increase liquidity and resultant rate of distributions from a fund.
  • Disbanding teams:  The Partners have decided that they will raise additional funds. Wishing to move to the next phase of their professional careers, they agree with their Limited Partners that it is in everyone’s best interest to pass along the management responsibilities to a new manager/owner.

 

A wide variety of corporations and financial services companies are owners or sponsors of venture capital and private equity investments. From time-to-time, frequently following changes in strategic direction or the arrival of new senior management, institutions will decide to withdraw from or reduce active involvement. We work with them to help them find the right solution.

 

We are also interested in discussions with Hedge Funds seeking to monetize their illiquid positions.

 

The Investment Process

 

The investment process encompasses two phases: during the first phase we assess the portfolio assets based on general information regarding investment size, ownership positions, industry sectors, and expected funding requirement. In the second phase we conduct thorough and in-depth analysis of every company deemed to have returns potential. Our research covers the following topics:

 

  • Management
  • Products and Services
  • Operations
  • Competitive and sector analysis
  • Financial performance
  • Funding history
    • Detail on all financing rounds
    • Ownership position
    • Board representation and information rights
    • Projected capital requirement
    • Voting rights
    • Transfer restrictions
    • Rights of first refusal
  • Exit considerations

 

In keeping with its disciplined investment approach, Milk Street Ventures during the second phase will coordinate with the seller direct contact with portfolio company management and/or co-investors to conduct first-hand due diligence. Upon completion of our due diligence, we submit a binding offer and are ready to close a transaction in a timely fashion.

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