Venture Capital Journal reports that Launchbay Capital has raised “almost half” of its $100 million target for its first venture secondaries fund.
The London-based company closed on a little over $25 million in early January, and plans to close a second time at the end this summer.
Launchbay, founded in 2018 as Digital Horizon, announced its rebranding in this year’s first close of its secondary fund. It is looking to expand its primary investment strategies into both early-stage growth-stage companies. The firm refused to reveal the names of LPs and the terms for the fund.
Alan Vaksman, founding partner of VCJ, said: “We always debated what the real price is.” “We liked the companies but we never liked the prices. We saw that the secondary market was less transparent, and there is more of a supply-demand dynamic than a closed-door deal between parties. We found that we could purchase the same great companies at better valuations, or at least understand the valuation better.”
Launchbay is one of a few new VC funds for secondaries that have been introduced in the last couple of years. The funds are managed both by new secondaries firms as well as existing VC firms who have expanded into secondary. According to VCJ, there are about a dozen firms actively involved in VC secondary funds. The largest players include Industry Ventures and Lexington Partners, as well as StepStone Group.
There are three main categories of VC secondaries: direct secondaries which involve direct sales by investors, founders or employees of start-ups, LP interests where a limited partnership in a venture funds sells their fund commitment to a a third party, and GP-led secondary where the general partner coordinates the sale to a new, sometimes the same firm, fund.
Launchbay will only focus on direct secondaries investments with values below $10 million. Vaksman believes that Launchbay will be able to generate liquidity faster than other secondaries investors because of the small ticket size.
“Our goal is closer to early-stage and employee investors [of target companies] than to take from GPs and large, stuck LPs,” he said. “We try to maintain our position there to preserve liquidity and, in turn, that allows us a much shorter funds. Our competitors’ funds are usually eight to twelve years old, while ours are four to five. All secondary funds return 2x to 3x, we just do it quicker.”
Vaksman stated that in some cases Launchbay would hold a position as short as one year, before exiting the deal and recycling the capital into other short-term secondary deals. The “recycling” portfolio, which makes up 30-40% of the secondaries fund, aligns with LPs desire to invest in leading-edge industries.
Vaksman stated that “our investors want to invest in the latest things.” “If you invest in something that is really good but it has been 10 years, it’s no longer the latest technology.” They want to be in data centres, GPU chips, AI, or different biotechs. This recycling of capital is what excites them, not investing and holding for the long term.
Launchbay continues to run a traditional venture capital fund while expanding into secondary markets. It closed on $45m for its debut fund to make direct investments in fintech and SaaS B2B companies across stages. It closed on $30 million of the $100 million target for Fund II. This fund will invest exclusively in early-stage fintech companies that use artificial intelligence.
According to performance data shared by VCJ, the firm has completed three exits of its Fund I. The firm generated an IRR of 24 per cent and a TVPI multiplier of 1.5x.
Launchbay also operates a data-centric platform for investing in addition to its direct funds and secondaries. The platform has two purposes: it connects Launchbay to brokers on the secondary market, creating dealflow to its recycling portfolio. It also allows Launchbay, and anyone who signs up for the platform, to compare data points about current and potential investments.
Vaksman views the platform as a key differentiator. “Retrieving data and analytics from secondary transaction provides newfound understanding, and an enhanced capability to make informed decisions,” said Vaksman. “Trackable Analytics can be pulled for specific companies or broad sectors to review recent share price, volume of trades and growth timelines as well as past, current and future funding rounds in order to better gauge true opportunities.”
Vaksman said VCJ, that his firm’s expansion in venture secondaries was a natural evolution both of its strategy and the venture market. Although it’s difficult to estimate the exact size of the VC secondary market, Vaksman estimates that it’s between $120 billion and $14 billion, with direct secondary holding a value of between $30 billion and $40 billion.
Vaksman stated that the market would realize in two to three years that VC was the most liquid asset and not the least liquid. “People think VC is a very illiquid asset. But with the development of technology and the acceptance of how VC secondary markets work, I believe this will be the market that is most liquid.”