Yesterday’s post was about in-kind distributions that venture capital (VC) funds make to their limited partners (LPs). A friend pointed out that some larger funds, such as Sequoia, A16Z, Thrive, and a few others, may be focusing more on making in-kind distributions to their LPs. These and other firms are starting to become registered investment advisors (RIAs), which my friend assumes is related to making in-kind distributions. I’ve been reading about funds becoming RIAs, and I don’t think it’s related to making in-kind distributions to LPs.

A VC fund that makes an early-stage investment in a company doesn’t need to be an RIA to do in-kind distributions. If one of the fund’s portfolio companies goes public or is acquired in a deal where some or all the purchase price is paid in stock of the acquiring company, the general partners can distribute that equity to their LPs. There may be reasons to wait to do so: for example, an IPO lockup period or wanting the acquirer’s equity value to increase before distributing stock to LPs. There are nuanced rules around VC funds holding a material percentage of fund assets in something other than private companies, but I won’t get into those details.

All the firms my friend mentioned are run by very smart people who have had a lot of success over several years. I don’t have any inside information on their strategic reasons for becoming RIAs, and I’m curious and plan to learn more. I wouldn’t be surprised if it’s related to their ability to invest in and hold a broader variety of assets for a longer period. Said differently, I wouldn’t be surprised if it allows them to expand their firms into areas outside traditional venture capital investing.