The primary benefit of a continuation fund, as opposed to simply selling the shares outright to another buyer in a secondary market transaction, is that it allows VCs to continue to manage their portfolio companies while offering liquidity options to their original investors.
Continuation funds have emerged as a necessary financial tool for venture capitalists amid a slowdown in IPOs and M&A activity, providing alternative exit strategies to return capital to limited partners.
As General Catalyst prepares to launch its continuation fund, the firm is likely to include established stakes in prominent startups like Stripe, Gusto, and Circle, further solidifying its market position.
The mechanism of continuation funds, while long utilized by private equity, has gained traction within venture capital circles, highlighting a strategic evolution in funding approaches as market conditions shift.
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