Lexington buys ~$1bn venture portfolio at big discount

The deal is an example of the type of 'clean up' deals routinely run by fund of funds and secondary shops.

Lexington Partners bought a portfolio of stakes in VC funds at an aggregate 40-50 percent discount from fund of funds Horsley Bridge Partners, sources told Buyouts.

The total deal, which closed earlier this year, was more than $1 billion, sources said. It’s not clear if other buyers were involved for smaller pieces of the sale. Several sources said Lexington was the sole buyer.

The deal is an example of the type of “clean-up” deals routinely run by fund of funds and secondary shops. Such firms run deals on older portfolios to close them out and deliver liquidity to LPs in those funds.

Clean-up deals, or tail-end portfolios, aren’t a huge part of the secondary market, but are a steady piece of the overall volume each year. Of the estimated $66 billion of LP sales in 2023, around 16 percent came from fund of funds winding down older vehicles, according to Jefferies full-year 2023 volume report.

“The desire for liquidity became the dominant theme of the year and drove 36 percent of all LP selling activity, up from 14 percent in 2022,” the report said.

A Lexington spokesperson declined to comment, while no one from Horsley Bridge responded to a comment request. Jefferies worked as secondaries adviser on the process.

The discount on the portfolio was in line with where venture stakes are trading recently. Jefferies found that venture pricing remained at around 68 percent of net asset value last year, as “buyer confidence in asset values remained low amidst the risk of down rounds in a challenging fundraising environment.”

PJT Park Hill, in its first quarter secondary market update, found that pricing on venture funds dipped to its lowest level, at an average 63 percent of NAV, in the third quarter, but has steadily improved to around 68 percent of NAV as of Q1.

“Pricing benefitted from green shoots in the IPO market, allowing secondary buyers to underwrite exits with more conviction,” PJT’s update said.

GPs with funds in the portfolio included EV Growth, Altman Capital, Vibe Capital, Polychain Ventures, Not Boring Capital, Dragonfly Ventures, Cendana Capital and SV Angel Growth, a source said.

Horsley Bridge was launched in 1983 and is headquartered in San Francisco, with offices in London and Beijing. Its funds of funds target early-stage venture, growth and small buyout, along with co-investments, according to its Form ADV.

As of December 31, 2023, the firm managed 41 funds, the Form ADV said.

The management company is owned by the managing directors, with no managing director owning more than 25 percent of the firm as of December 31, 2023, the ADV said. The firm managed about $21.6 billion on a discretionary basis as of the same date.