Jumping into the venture capital secondary market without the right expertise is akin to climbing Mount Everest without a Sherpa guide. You might survive, but your chances aren’t too good unless you’re an expert yourself.
Secondaries firm Nova Capital Management found some proper VC secondary guides for its latest trek. Nova announced last week that it added two senior executives to specialize in venture capital secondary deals and portfolio management. The London-based firm hired Olav Ostin and David Tate to make direct venture capital deals in Europe and the United States.
Ostin previously focused on venture capital deals for the ETF Group, a Swiss venture capital firm. Tate was most recently a stockbroker with U.K.-based West LB Panmure.
The two will lead the firm’s venture capital secondary efforts. Nova also makes buyout and other investments, and specializes in direct investment portfolios of distressed and under-performing funds.
“There is an enormous amount of distressed and under-performing venture capital portfolios,” says Michael Kelly, a managing director with the firm. “It is an area that’s full of dread and concern because there’s a lot of dead wood out there, but there’s a lot of value as well.”
Kelly notes that the firm operates in buyout and all private equity industries, but he feels the venture one requires extensive experience.
“We needed to have individuals who had a lot of experience in that sector to help us cherry pick the good portfolios from the bad,” he says.
Prior to co-founding Nova in 2002, Kelly was a senior partner at Executive Interim Management (EIM) and in general management with Heron International. The firm’s first deal was its purchase of the LICA Development Capital portfolio, a $184 million portfolio that includes engineering firm Accura and ice-skating rink operator Planet Ice.
Unlike more traditional secondary buyers, Nova Capital does not have its own fund. It draws capital from shareholders and firms with proprietary partnerships.
A year ago publicly traded Caledonia Investments, which has a $1.7 billion investment fund, acquired a 33% stake in Nova Capital, providing significant funding for its deals. Nova also has a relationship with a large U.S. financial firm, which Kelly describes as a restructuring fund with roots in debt financing. In addition, the firm has partnerships with a handful of family offices in both the United States and Europe, three of which are proprietary.
Finally, Nova Capital has a relationship with W Capital Partners, a U.S. private equity firm focused on secondary market private equity deals.
Kelly expects the firm to announce a new venture capital deal soon that has U.S. assets. Nova is also looking closely at three portfolios that are purely U.S. investments and a number of European deals that have at least one-fourth U.S. exposure.
Nova’s hiring announcement comes as many U.S. and European secondary firms are purchasing buyout interests, which analysts point out are becoming more favorable than venture capital.
“Buyout assets are much more predictable,” says Ian Charles, spokesman with research and advisory firm Cogent Partners. “But venture portfolios in general have performed well over the last 12 months because of the Nasdaq. We’re starting to see some distributions coming off the venture portfolios, which we haven’t seen in a few months.”