A brief overview of venture capital secondary, by Practical Venture Capital (Sept 2020, Dave McClure)

1. “Skip the J-Curve” – An Intro to Venture Secondary

2. Seed A B C LATER-STAGE IPOs / Big ExitsSTAGE
TIME
LIQUIDITY
C
A
A
A
B
B
3Y2Y1Y 4Y 5Y 6Y 9Y8Y7Y 10Y + beyond
Buy fund secondary
@ 25-50% discount
D
C
B
D
“Buy Unicorns on Sale”
Invest in VC funds that are already winning
“Skip the J-Curve”
Avoid the first 5 years of risky bets
FUNDS
COMPANIES
VALUE
RISK

3. 3Y 4Y2Y1Y 5Y 6YTIME 7Y 8Y 11Y 12Y10Y9Y 13Y 14Y 15Y
7 year vehicle
1X
Faster return
of principal
10-15 year vehicle
Better
performance
0.5X
3-5X
1-2X
VC Fund
Secondary
Typical
VC Fund
Benefits: Faster Growth, Faster Liquidity

4. What’s the Difference between Fund Secondary and Company Secondary?
DIVERSIFIED: less risk exposure
LESS COMPETITIVE: less activity, fewer buyers
BIGGER DISCOUNTS: 25 - 50%
D
B
D
C
B
C
Company (Direct) SecondaryFund Secondary
CONCENTRATED: more risk exposure
MORE COMPETITIVE: more buyers and sellers
SMALLER DISCOUNTS: 0 - 20%
FUND
COMPANIES
SLICE of LP interests across PORTFOLIO Equity stake in a SINGLE COMPANY
D
C
B
PVC advantage

5. Why are Discounts BIGGER for Fund Secondary than Company Secondary?
D
C
B
Fewer Buyers, More Arbitrage
Because there are fewer buyers specializing in Fund
Secondary and because many sellers are competing
for liquidity, buyers have greater leverage relative to
sellers. Fund Secondary is a buyer’s market.
Basket of Assets, Harder to Value
Fund Secondary is often heavily discounted because
it’s more complex to evaluate a basket of assets
than just a single company. As former managers and
LPs in over 40 venture funds, PVC has extensive
experience evaluating multi-asset portfolios.
Fund Secondary is a
buyer’s market…
but only for buyers
who know what
they’re doing.
Unicorns Matter, Horses Discounted
Larger companies close to IPO or acquisition are in
greater demand; smaller companies that are still
growing are in less demand. Multi-asset portfolios
are valued primarily based on current unicorns;
future unicorns and other non-IPO winners are more
heavily discounted.

6. LPs and GPs need
liquidity and partners
for multiple reasons
(not just distress).
Why do LPs and GPs Sell Winning Portfolios Early?
• HNWIs and family offices need liquidity when change happens (death, divorce, retirement)
• Corporate LPs change strategy every few years, just as CEOs/CFOs come and go
• LPs may need liquidity when purchasing a major asset (e.g., real estate)
• Market volatility and uncertainty may increase the need for cash
Non-institutional LPs may sell because:
• Sell a portion to show realized gains as they raise their next fund
• Sell to generate cash for operational expenses, recycling, or distributions
• Sell to hedge and take (some) money off the table
• Partner (raise capital) to exercise pro-rata rights
• Partner (co-invest) to increase investment in follow-on rounds
Early-stage GPs may sell (or partner):

7. Secondary Market Growth: Venture Capital vs. Private Equity
PE Secondary: 10x Growth from 2000 to 2020
VC Secondary: 10x Growth from 2010 to 2030
2000 2020201520102005 2025 2030
$10B
$100B+
$80B*
(2018)
$38B**
(2019 e)$26B
Dot-com
crash
US financial
crisis
EUR
sovereign
debt crisis
China-US
Trade War /
CFIUS /
Coronavirus
$10B
Company Secondary
(Direct)
VC Fund
Secondary
* https://settercapital.com/media/reports/Setter_Capital_Volume_Report_FY_2018.pdf
** https://www.industryventures.com/estimating-the-size-of-the-secondary-market-for-venture-investments

8. Case Study: Venture Secondary SPVs
(Q1/20): $5M secondary in 500 Startups Fund I (2010)
• Purchased $7M in LP interests @ 30-45% discounts (42% avg)
• 4 Unicorns: Talkdesk, Lucid, Intercom, Udemy (~80% of portfolio)
• Previous IPOs: Twilio (2016), SendGrid (2017), The RealReal (2019)
> 3x
Projected
net return
to LPs:
in 5 years
1X
2X
3X
4X
2021 2022 2023 2024 2025
est. 1x principal
returned in 2-3 yrs
1.5x immediate
markup (due to
discount)
0.47
0.45
0.54
0.87
1.27 3.60
1.0x invested capital
2020 Total
Source: PitchBook, July 2020
* Undisclosed.
Company Val Latest Funding Round, Lead Investors
$3B Q3 / 20 $143M Series C, Franklin Templeton
$1.0B Q2 / 20 $52M Series D, ICONIQ, Spectrum, Meritech
$1.2B Q2 / 18 $125M Series D, Kleiner Perkins
$2.0B Q1 / 20 $50M Series E, Benesse Holdings, IVP
$300M * Q1 / 20 [ Undisclosed ]
$300M * Q3 / 20 [ Undisclosed ]
** Q2 / 20 $251 Series C Itochu, Visa, Soros, PayPal
[ other ] - Notable: Smule, Flywire, KiwiCo, Conekta
5-Year Projected Distributions and Returns
2.2x gross
after Q2
FMV Realized Returns
Unicorns
Non-Unicorns

9. 1
We buy secondary interests in top-
performing VC funds and portfolio
companies, from LPs and GPs who
want early liquidity.
2
We buy VC portfolios at 5-10 years
maturity, after winners are already
winning and growth is accelerating.
3
Our portfolios contain pre-IPO
unicorns, after they have raised
Series B/C/D financing from top-
tier institutional VCs.
4
We have invested in thousands of
companies across 20 VC funds
with over 100 exits, 15 unicorns,
and 5 IPOs. Forbes Midas List,
2016 and 2017.
5
We are experienced investors and
startup veterans who worked at PayPal,
eBay, Founders Fund, and 500 Startups.
We’ve spent 50 years in Silicon Valley.
6
We buy VC portfolios after losing assets
are written off, when distributions are
already happening. We expect a quick
1X return of principal within 3-5 years,
and 3X or better in 5-7 years.
Reasons to Invest with Practical Venture Capital
Established Portfolio WinnersVC Secondary @ 25-50% DiscountsSilicon Valley Network
Forbes Midas List Top 100 VCs Access to Pre-IPO Unicorns Faster Liquidity, Returns in 5 Years

10. TOP 100 GLOBAL VCs
2017 (#68), 2016 (#96)
15+ UNICORNS / 5 IPOs
Dave McClure
General Partner
BS, Engineering, Applied Math
Johns Hopkins University
Aman Verjee
General Partner
FORMER COO
500 STARTUPS
FORMER CFO
SONOS (NASDAQ: SONO)
FORMER CFO
EBAY NORTH AMERICA
(NASDAQ: EBAY)
FINANCE & STRATEGY
PAYPAL (NASDAQ: PYPL)
BA, Economics
Stanford University
JD, Harvard University
Stephanie Shorter
Investor Relations
Jake Block
Senior Advisor
NEUROSCIENCE PROFESSOR
VANDERBILT UNIVERSITY
PhD, Behavioral Neuroscience
Washington State University
HOW TO VC
VC Book Co-Author
BRAIN + BEHAVIOR CHANGE
EXPERT
Consultant to 50+ startups
ACCELERATOR
NEUROTECH LEAD
Transformative Technology
Academy + Conference
MANAGING PRINCIPAL
JBB CAPITAL
MBA, Finance
London Business School
EXECUTIVE DIRECTOR,
EUROPEAN INSTITUTIONAL
EQUITY SALES
NOMURA SECURITIES
PRIVATE BANKER + DIRECTOR
DEUTSCHE BANK
San Francisco office
ASSISTANT VP, ACQUISITIONS
MARCUS & MILLICHAP /
SOVEREIGN INVESTMENT CO.
DIRECTOR OF MARKETING
PAYPAL (NASDAQ: PYPL)
VC, FOUNDERS FUND
INVESTOR, FACEBOOK fbFUND
Taught “VC Unlocked”
at Stanford University
FOUNDER
MANAGING PARTNER
$500 AUM / 20 VC funds
JBB

11. For illustrative purposes only, not drawn to true scale. Based on fund financials, as at 6.30.20.
18 UNICORNS FLYWIRE
TALKDESK
INTERCOM
CANVA
IPSY
UDEMY
REDDIT
GITLAB
FABFITFUN
THE REALREAL
4 UNICORNS CREDIT KARMA
SENDGRID
TWILIO
LYFT
2004-09 2010-15
DMC
angel
FF Angel
Founders Fund II
500 Startups F1 500 Startups F2 500 Startups F3
$85M
$2.5M $1M
$175M
$40M
$180M
20%
>50%
>50%
$44M
$29M
$226M $124M
23.6%
12.8%
12.1%
5X
65X
40X
5.6X
2.4X
1.8X
Net IRR
Net TVPI
AUM
$1.6M
NAV
~20%
$325K
PORTFOLIO PERFORMANCE Dave McClure / Founders Fund / 500 Startups
2004-09 2008-09 2009 2010-11 2012-13 2014-15
Facebook fbFund
Founders Fund II, Accel X
CREDIT KARMA
SENDGRID
TWILIO
GRAB
STRIPE
BUKALAPAK
LUCID
VTS