The Rise of Continuation Funds in the Venture Capital World

Continuation funds are becoming increasingly popular in the venture capital world as a way for firms to find an exit strategy when they can't sell portfolio companies at the desired price. These funds involve raising fresh money from investors and using it to buy out existing portfolios from previous funds. This allows the firm to return money to old investors and attract new ones by claiming the new portfolio will be highly profitable. However, there are concerns about valuation and pricing issues, with 42% of continuation fund deals happening at lower valuations. Additionally, fees can be problematic as VC firms can continue charging management fees on the entire portfolio value and potentially receive performance fees when exiting the new fund.