Finding Liquidity (It’s Harder Than It Looks!)

Every fund talks about DPI, but it’s elusive. The delta between TVPI and DPI grows — or shrinks these days, but not due to DPI increasing!!

Lately, I’ve heard more peers quietly chatter about liquidity. Selling into a round, moving shares on the secondary market, or slicing off pieces of their fund. None of it’s straightforward, and I feel like it’s spoken about more often than done?

Option 1: Selling into a round.

Cleanest in theory, but it’s tough to get allocation. And in our case the founder must be OK with it.

Option 2: Secondary sales.

You can go through a broker, or direct to a buyer — on or off the cap table. But most buyers want a discount depending on the company and brokers take a cut.

Option 3: Selling a fund slice.

This one’s growing — LPs or secondaries buying into an older fund at a discount. Usually they’re buying 1-2 main holdings and they too want a discount.

All of these feel like trade-offs. You don’t want to alienate founders. You don’t want to give up future upside. Your LPs want liquidity, and you need it for recycling. But you don’t want to be stupid.

As one LP told me, “You’re going to be wrong for selling too early or wrong for not selling – either way you’ll be wrong.”

I wish there were a formula here. (e.g. if holding > X multiple or Y % of fund, sell) But most of us are just making it up as we go.

Any other ideas?