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Cendana and Kline Hill secure $105 million in new funding to buy stakes in seed venture capital fund from limited partners looking to sell

If you ask investors to name the biggest challenge facing venture capital today, you’ll likely get an almost unanimous answer: lack of liquidity.

Despite investing in startups or venture capital funds that have increased in value, these bets haven’t generated much, if any, cash for their backers due to the lack of IPOs. This is the disadvantage of private investment relative to public markets. Corporate stock in private companies such as startups cannot be sold at will. A company must authorize its existing investors to sell their shares to an approved other person, which is called a secondary sale.

Venture investors desperate for cash, whether the VC firms themselves or their limited partners, are increasingly looking to sell their illiquid positions to secondary buyers.

Now, coupled with the fact that many early-stage startups were overvalued during the funding frenzy that peaked in 2021, these stocks may be worth even less now. This provides a new and unique opportunity to purchase shares in seed-stage venture capital funds as well as shares in startup companies at relatively cheap prices.

Today, Cendana Capital is a fund of funds investing in dozens of companies. Seed stage venture capital firm and partners Klein Hill Partners, A firm focused on buying small, previously owned private assets has announced the launch of a new $105 million Kline Hill Cendana Partners fund, well above the $75 million they originally hoped to raise.

“For the past two years, we’ve been hearing from our portfolio funds, ‘We have a family office that wants to sell their $2 million commitment. Would you be interested in buying it?” Cendana Capital founder and director said General Manager Michael Kim.

Kim believes the opportunity to increase the company’s ownership among venture funds and promising startups at a deep discount is too good to pass up. But because investing in secondary assets required expertise that Cendana’s investors didn’t have, he decided to join forces with Kline Hill.

Raising money for the fund was easy, King said. Cendana’s limited partners asked Kim to take advantage of this buyer’s market.

“We just handed that hat over to the existing LPS in Kline Hill and Cendana,” Kim said.

Buy Seed Fund Shares

The Kine Hill Cendana investment vehicle is unique in that it purchases secondary interests in seed-stage companies and individual companies from seed funds. King said most existing second-tier players are too big to seize the opportunity.

Michael Kim, Founder and Managing Director of Cendana Capital

It’s hard not to see the symbiotic relationship between the two companies. Cendana’s relationships with its portfolio funds, which include Lerer Hippeau, Forerunner Ventures and Bowery Capital Kline, are helping it stay ahead of the curve in finding secondary deals. It then passes these opportunities to Kline Hill, which evaluates, underwrites and negotiates transaction prices.

Although Kline Hill has been investing in secondary venture capital since its founding in 2015, Chris Bull, the firm’s managing director, said working with Cendana brought information that was extremely valuable to the investment process.

“The most exciting thing for us is that we were able to get the deal done, and I think it was hard for either of us to cross the line,” Bull said.

The current plan is to invest the entire $105 million fund by the end of 2024. The two companies are trying to set up this joint venture, and if it goes well, they will raise follow-on funds next year.

The two companies aren’t the only ones noticing the huge opportunity to acquire previously owned venture capital stakes.Traditional secondary investors e.g. Lexington Partners and black stone, recently raised the largest secondary fund ever. While the vehicles target all types of private assets, investors say some of that capital is bound to flow to venture capital. also, Industrial Venture Capital Nearly $1.5 billion in funds have been secured specifically for secondary venture capital.

But multibillion-dollar funds like this one “generally focus on much larger, multi-stage companies,” King said. It is much rarer to apply such a large-scale financial strategy to the seed stage.

Kine Hill Cendana is onto something. Because venture-backed companies tend to stay private longer than investors’ 10-year funding cycles, the need for liquidity is likely to only continue to grow.

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