Fund Structure
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Quick Answer
A new fund entity created by a GP to acquire select portfolio companies from a maturing fund, giving high-performing investments more time to grow while providing liquidity to existing LPs who want to exit.
A Continuation Vehicle (CV) is a GP-led secondary transaction structure where the general partner creates a new fund entity to acquire one or more portfolio companies from an existing, maturing fund. Existing LPs in the old fund can choose to either roll their interest into the continuation vehicle (maintaining exposure to the assets) or cash out at the transaction's agreed-upon valuation (receiving liquidity). New investors can also commit to the continuation vehicle, providing the liquidity capital for cashing-out LPs. Continuation vehicles have become increasingly popular as GPs seek to retain their best-performing investments beyond the original fund's life, avoiding forced sales that might leave significant value unrealized. The structure requires careful governance to manage conflicts of interest, as the GP is both the seller (from the old fund) and buyer (through the new vehicle). Independent valuation and LP advisory committee oversight are essential. Typical continuation vehicles hold 1-5 companies and have 3-5 year terms with fresh carry and fee arrangements.
In Practice
A GP's Fund II (2015 vintage) is approaching its final extension with two portfolio companies that the GP believes could 5x from current valuations with 3 more years of growth. The GP creates a continuation vehicle, valuing the two companies at a combined $200 million. 40% of existing Fund II LPs elect to roll their interests into the CV, while 60% cash out at the $200M valuation. A secondary buyer provides $120 million to fund the cash-outs. The continuation vehicle has a 4-year term with reduced fees and fresh 15% carry for the GP.
Why It Matters
Continuation vehicles solve the fundamental tension between fund lifecycle constraints and investment holding period optimization. For LPs wanting liquidity, CVs provide an exit. For LPs with conviction, CVs allow continued exposure. For GPs, CVs preserve their best investments. However, the conflict of interest inherent in GPs setting the valuation for their own buyout requires rigorous governance.
VC Beast Take
Continuation vehicles are becoming the new normal for top-tier funds, but they're creating a two-tier LP system. Sophisticated LPs who roll into the continuation fund often get better economics and longer runway with winners, while smaller LPs get forced liquidity at potentially suboptimal timing. It's reshaping GP-LP power dynamics significantly.
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A Continuation Vehicle (CV) is a GP-led secondary transaction structure where the general partner creates a new fund entity to acquire one or more portfolio companies from an existing, maturing fund.
Understanding Continuation Vehicle is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Continuation Vehicle falls under the fund-structure category in venture capital. This area covers concepts related to how venture capital funds are organized, managed, and governed.
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