Turbine Raises $22M to Provide Liquidity for VC Investors

The Growing Need for Liquidity in Venture Capital

A slowdown in Initial Public Offerings (IPOs) over the past few years has created a significant challenge for limited partners (LPs) investing in venture capital funds: a scarcity of accessible funds.

The limited availability of cash returns has proven particularly problematic for high-net-worth individuals and their family offices – entities responsible for managing the financial assets of affluent families – who have made considerable investments in VC funds.

Entrepreneurial Origins of Turbine

Mike Hurst, a successful entrepreneur, personally experienced the difficulties of having capital tied up in venture capital. Following the sale of his payments startup, Exactuals, to City National Bank in 2018, he allocated a substantial portion of the proceeds to both technology stocks and venture funds.

The downturn in the technology stock market in 2022 left Hurst facing a cash flow issue, as he explained to TechCrunch. He lacked sufficient liquid assets to fulfill his commitments to his venture capital funds.

“Fund managers continued to issue capital calls and request new investments. I was eager to participate, but I didn’t want to resort to mortgaging my home, establishing a margin line, or selling Amazon stock at a low point, anticipating its recovery,” he stated.

This experience spurred Hurst to develop a credit solution enabling LPs to borrow against their positions in venture funds.

Introducing Turbine: A Debt Platform for LPs

Hurst’s concept materialized as Turbine, a debt platform specifically designed for LPs in private equity and venture capital. The company is officially launching on Friday and has secured $22 million in equity funding, co-led by Alpha Edison and TTV Capital, with contributions from Fin Capital, B Capital, and Sozo Ventures.

Furthermore, Turbine has secured a credit facility of up to $100 million from Silicon Valley Bank to facilitate its lending operations.

Turbine empowers LPs to access capital by leveraging their fund stakes as collateral, functioning similarly to a home equity line of credit utilizing property value or a margin line using stock holdings.

Industry Validation and Market Opportunity

Gardiner Garrard, co-founder and managing partner at TTV Capital, expressed immediate enthusiasm for Turbine upon hearing Hurst’s pitch.

“I frequently encountered LPs inquiring about liquidity options,” Garrard noted. However, limited viable solutions existed to assist individual investors in accessing cash.

Garrard explained that TTV could have potentially sold portfolio company shares on the secondary market to aid the investor, but he was hesitant to divest assets prematurely to accommodate a single LP’s needs.

Alternatively, the LP could attempt to sell their fund stake (LP interest), but such transactions typically involve “substantial discounts,” resulting in a lower sale price than the stake’s actual value.

Turbine’s Value Proposition

Turbine asserts that its service provides investors with liquidity based on the appreciated value of their venture fund positions, without requiring them to forfeit potential future gains. For instance, if an LP’s initial $3 million investment has grown to $10 million, they can utilize the $10 million valuation as collateral for a loan.

It’s important to note that these loans carry an interest rate of approximately 9% (compared to a prime rate of around 7.5%, reflecting the current cost of borrowing).

However, Garrard contends that this rate remains “very reasonable and significantly less expensive than selling” the stake on secondary markets at a loss or even at a discounted price.

Early Adoption and Future Expansion

Turbine’s initial clientele consists of the five venture firms that participated in its equity funding round. The general partners of these firms are already extending access to Turbine’s credit product to their LPs, according to Hurst. The company intends to broaden the availability of its service to a wider range of VC funds following this announcement.

“I was surprised that a solution like this wasn’t already available for our LPs,” Garrard remarked.