One Institutional LP on VCs Buying Up Secondary Shares
Recently, I asked a number of LPs the question: When VCs buy secondary shares in hot companies like Facebook and Twitter, why doesn't it infuriate them? After all, LPs have historically chosen to invest in VC because it is the only way to gain access to private companies with huge growth potential. The secondary market, on the other hand, provides the same capability to nearly anyone with enough zeros in their bank account. I also asked the LPs why they're willing to pay management fees for the service, when seemingly, they could invest in the companies directly. I wound up writing a column on the topic, but I wasn't able to use much of the feedback of one very thoughtful and high-profile institutional LP, who asked not to be named. For readers interested in the perspective of the LP -- an investor in pretty much every so-called top-tier fund --here's what I was told:
