Considering the drastically low returns venture capital funds have seen over the last ten years (and there are more than enough articles floating around providing the numbers), it’s no wonder that they are increasingly looking at innovative ways to maximise gains for their LPs and themselves.

A bit of history - I was quite intrigued by the four way transaction between Coller Capital, HabourVest, DFJ Esprit and 3i. As 3i started divesting its venture portfolio, the key dilemma was finding a ‘good home’ for those companies which had a high growth but were not ready for a trade sale or IPO. In came the secondaries firms Coller Capital and HarbourVest who bought a significant part of 3i’s European portfolio, with the management of the companies outsourced to DFJ Esprit. DFJ set up a new division, Encore Ventures, with a fund of £170mil (HarbourVest and Coller as the two investors) targeted at investing in secondaries, starting with the 3i portfolio.

Coming back to now –Investec has recently extended an £8mil loan to Encore Ventures so that their fund is not taxed by the management, legal and other such fees required for regular operations of the firm. Instead the entire fund can be directed towards the acquisition of new assets (or funded to current assets). This is to maximise the return for the LPs/ secondaries.

Whatever happened to the traditional 2% management fees?