GP-Led Secondary Transactions And Continuation Funds: Structuring Options And Tax Considerations

Secondary transactions led by a general partner (GP) have gained significant traction as an alternative liquidity solution for venture capital managers "managing out" their older vintage funds with valuable – but often illiquid – assets. Aside from commercial considerations of valuation and terms on fund economics, as well as having to navigate and manage for significant conflict of interest issues, which are obviously key considerations, venture capital managers must also take into account various structuring considerations to ensure limited partner (LP) alignment, while preserving the long-term value of the fund's assets. In addition, US tax considerations for a venture fund's LPs, which initially may be overlooked by non-US GPs, also play a critical role in determining a successful outcome for these transactions. We highlighted below a number of options GPs can consider when crafting a compelling proposition for existing LPs and attracting new investors to