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VC's Urge to Merge, Part II

August 28

In a confirmation of the trend we reported to you on August 12, The Deal today ran a piece detailing the growing numberof smaller VC's who are merging in the face of a tough fund-raising market and portolio illiquidity.

Reported in the article was the merging of Aspen Ventures with Redleaf Venture Management, Encompass Ventures Management with Digital Partners, and Core Capital Partners with GCI Venture Partners. We earlier reported to you the merging of Novus Ventures with Artemis Ventures.

While the obstacles to closing such deals are formidable (how does one value illiquid portfolio holdings, who is responsible for the continued management of certain portfolio investments, who maintains future funding liability, etc.), nonetheless, the advantages of greater scale can be even more powerful. Merger partners are seeking to lower adminstrative costs as a function of their fixed management fee income, wish to diversify their portfolio risk by spreading it among more "bets", and they hope their larger fund size will prove more attractive to future limited partner investors.

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