In recent years, the venture capital scene has seen a significant slowdown in IPOs, leading to a major challenge for limited partners (LPs) who invest in these funds: a lack of liquidity. This issue is particularly pressing for affluent individuals and family offices that have committed substantial amounts to venture capital.
For entrepreneur Mike Hurst, the consequences of having funds tied up in venture capital became apparent after selling his payments startup, Exactuals, to City National Bank in 2018. Following this sale, he invested a large portion of his earnings into tech stocks and venture funds, only to find himself unprepared when those stocks plummeted in 2022. In an interview with TechCrunch, Hurst expressed frustration over the relentless demand for capital from firms, noting that he wished to meet these demands but lacked the cash necessary to do so without sacrificing other investments.
This experience inspired Hurst to develop a financial product that would enable limited partners to secure loans against their stakes in venture funds. This idea culminated in the creation of Turbine, a new debt platform aimed at providing LPs access to liquidity by using their fund stakes as collateral—much like how home equity lines work.
Recently emerging from stealth mode, Turbine has successfully raised $22 million in equity funding, co-led by Alpha Edison and TTV Capital, along with additional participation from Fin Capital, B Capital, and Sozo Ventures. Additionally, Turbine secured up to $100 million in debt from Silicon Valley Bank to bolster its lending capabilities.
Unlike traditional means of securing liquidity, which often require investors to divest their stakes at a loss, Turbine offers a more viable solution. By allowing LPs to use the appreciated value of their investments as collateral, Turbine seeks to provide cash flow without sacrificing future upside potential. For instance, if an LP invests $3 million in a fund that grows to a valuation of $10 million, they can leverage that $10 million valuation for a loan.
While Turbine’s loans come with an interest rate near 9%, which is relatively high compared to the prime rate of around 7.5%, co-founder Gardiner Garrard posits that this rate is still manageable and avoids the greater losses associated with selling assets prematurely.
Turbine’s initial clientele includes five venture capital firms that supported its equity funding, with their general partners already offering the platform’s credit solution to their LPs. Hurst states that there has long been a need for such a service, which could significantly ease liquidity issues for limited partners within the venture capital landscape.
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