I did some research after my posts on IPOs and venture capital (see here and here). Through friends at VC firms, I learned how one early-stage VC firm is thinking about exits.

The VC firm is concerned by the lack of tech IPOs because it makes it difficult for them to return cash to the limited partners (LPs) who invested in their funds. These LPs are less likely to invest in their new funds if they don’t see cash distributions from funds they already invested in. To raise new funds, VCs must exit existing portfolio companies and return that cash to LPs. To address this, the VC firm has instituted a liquidity planning strategy. Here’s what they’re doing:

• Building relationships with investment banks and deepening existing relationships so they can better understand and monitor the mergers and acquisitions (M&A) market
• Hiring a team member specifically focused on growth equity and M&A who will be part of the investment team
• Conducting biweekly liquidity planning meetings whose priority is equal to that of their weekly deal flow meetings
• Educating CEOs of portfolio companies on liquidity planning

The second and third points caught my attention. They show how important the issue of exits has become to this firm. Their strategy highlights that they’ll aim for IPOs to exit their investments in portfolio companies. They plan to lean heavily into M&A and make them a priority.

I’ll keep digging into this more. As I do, I suspect I’ll start hearing more about secondary sales being part of strategy at some early-stage firms.