“Evergreen” funds, a “patient” version of venture capital

Posted on January 4, 2023, 7:56 am

In botany, the word “evergreen” designates plants whose green leaves do not fall during the year; in the investment world, it designates a fund that has no closing date. Quite a different pattern, as funds typically have a ten-year shelf life. It also has the advantage of attracting entrepreneurs who have less pressure to sell or do an IPO.

Long the prerogative of private equity, evergreen is beginning to spread to its little brother, venture capital. California star fund Sequoia Capital launched its own in 2021, causing a mini-earthquake in the industry. In France there are a small handful of them, one of the most well known being the 2050 Marie Ekeland fund. Newcomers have joined the fray as Asterion – historically an investor club that invested 10 million in start-ups – is launching its first vehicle dedicated to impactful seed-stage start-ups.

Asterion has another peculiarity: for each investment, it creates an SPV (Special Purpose Vehicle, Ad Hoc Entity), which is commonplace in investment clubs. This first fund, whose target amount is 8 million euros (limit to be regulated), will hold a 30% stake in each of the SPEs.

More flexibility

Overall, these “permanent” funds are synonymous with flexibility, as they allow you to invest at any time. Unlike traditional funds, they do not have a funding phase, nor an implementation phase and, of course, an exit period, which generally occurs six to eight years after the creation of a vehicle.

So many advantages that can also be perceived as disadvantages by institutional and private investors. “When the LPs [limited partners, investisseurs] commit to a fund, they want to contractually commit to go out and try to lock in that. It’s harder for them to invest in an evergreen fund because there’s not necessarily a guarantee of getting their money back,” says Alban Oudin, co-founder of Resonance, a new perennial generalist fund. This has the advantage of being backed by family holding company Otium Capital, which has a billion assets under management. As soon as Resonance wants to invest, it asks for funds from Otium.

“As we look to family offices [gestionnaires de fortunes] and entrepreneurs, are less afraid of not knowing exactly when they will get their money back. On the other hand, an institution will want to ensure that the risk is as low as possible,” defends his team Antonin Leonard, partner of Asterion.

lift over the water

The “deal by deal” format of its fund also provides internal liquidity for each investment. “SPV remains a long-term shareholder and does not intend to liquidate, but individual investors within SPV can resell the shares to each other,” he adds.

At Investir&+, a perennial impact fund created in 2012, the recipe works. When we look for an impact project, we are not looking for a future unicorn, but a start-up that has the potential to be profitable and has a frugal way of consuming money. In fact, they are companies that require more time, but are less risky for our investors. », believes Mari Kameyama, the fund’s investment manager, who assumes that she will have a ORDERING [taux de rentabilité interne] obviously positive, but not in the same orders of magnitude» than more traditional funds.

The notion of impact allied to the perennial model also brings some consistency: without being a guarantee, it is the possibility that so-called virtuous projects avoid denying their impact in favor of economic imperatives. A model that is also useful for young shoots that have long R&D processes.

taste the perennial

The term “evergreen” currently does not enjoy legal protection. For many funds, especially younger ones, this notion of time is still just a promise. “It’s hard to prove that until we have at least five to seven years behind us,” recognizes Antoninus Leonardo of Asterion.

Investir&+ has already carried out six exits to date, for around thirty participations. Because evergreen does not mean the absence of production. “Sometimes it’s hard to get business people to listen. We certainly have the possibility of staying longer in the capital, but we still have a liquidity clause, and at some point we will have to meet for an exit. There is no doubt that we remain blocked, and it is all a balance to find, adds Mari Kameyama.

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