What is a continuation vehicle in venture capital?

A continuation vehicle (also called a continuation fund or CV) is a mechanism that allows a VC fund to transfer one or more portfolio companies from an expiring fund into a new, separate vehicle — typically with a new or extended holding period. This lets GPs hold onto companies they believe have more value to create, rather than forcing a sale just because a fund is reaching the end of its ten-year life.

Here's the problem CVs solve. Suppose a VC fund is approaching year ten, but its best remaining portfolio company — say, a late-stage unicorn — isn't ready to IPO yet and a sale would undervalue it. The fund is legally obligated to wind down, which means selling at a suboptimal time. A continuation vehicle transfers that stake into a new fund, buying the existing LPs out (or offering them the choice to roll their position).

LPs in the original fund get optionality: they can sell their interest to new investors at the current valuation (getting liquidity) or roll into the CV (maintaining their exposure). New institutional investors (often secondary buyers like Lexington Partners or Coller Capital) provide the capital to buy out LPs who want liquidity.

CVs have grown popular as IPO windows become less predictable and companies stay private longer. Critics argue they can create conflicts of interest: the GP sets the valuation at which existing LPs are bought out, which can disadvantage LPs who don't have the sophistication to evaluate whether the price is fair. Regulators and institutional LPs have pushed for independent valuations and strong advisory committee oversight on CV transactions.

For founders, a continuation vehicle can be a positive signal — it means your lead investor is committed to the long term and isn't being forced to sell your company prematurely.