What’s in a name: Introducing Flywheel
Our firm was formed in 2023 with a core belief: liquidity is Venture and Growth’s missing link. Without the promise of financial reward, founders and their teams lose interest in slogging away, day after day, to build the next big thing. Without the prospect of timely returns, LPs stop committing to GPs backing those builders, and Angel investment into the next generation of growth slows. Liquidity is the thing that keeps the venture-growth wheel turning. And the more there is, the faster it whirs.
Today, there is more than $4.2T AUM in VC/Growth globally, up from $1.3T in 2018. The market’s size now almost equals that of Private Equity Buyout at $4.3T (1). It’s well documented that traditional exit markets aren’t recycling venture capital fast enough, and even better how keen founders, GPs and LPs are for liquidity. And yet by some estimates only 0.3% of VC/Growth AUM was turned over through secondary in 2023 (2). Why isn’t the secondary market filling the gap?
The problem is inefficiency (or as we call it, ‘friction’) — from the immediate deal-killers of discount price optics and wide valuation spreads, to the broader considerations of opportunity cost from selling too early, or a board’s desire not to have vital team members disincentivized by taking chips off the table. The venture secondary model as done today struggles to provide the liquidity required, and when it does, rarely creates great outcomes for liquidity seekers.
Moreover, there’s simply a limited supply of equity capital willing to take on minority, junior positions in high-risk companies. The private equity secondary market looks different, with secondary now accounting for 14% of exits over the past year (3). As the younger sibling, we believe the answer to VC/Growth’s liquidity problem can be found by looking up to its more mature elder.
That’s why we’re bringing our novel “hybrid” secondary approach to Venture. By tailoring preferred equity-based structures from private equity’s secondary market, we aim to address the unique inefficiencies of the VC/Growth market. With this, we look to make secondary liquidity both easier to unlock and more attractive for founders and venture investors. Moreover, we aim to bring more capital to market by providing an investment proposition for the wide universe of sophisticated allocators seeking a more risk-managed investment.
Our firm was formed to spur scalable liquidity in venture and growth. With more liquidity comes more rapid recycling of talent and capital, in turn driving a flywheel effect of greater innovation, investment and growth. With that, we’re pleased to announce the launch of Flywheel Capital.
Sources: (1) Prequin as of 2023. (2) Lazard, Secondary Market Report 2023. (3) Financial Times, “Secondary sales of private equity stakes set for record levels amid cash crunch”, October 16th 2024
