Fund Structure
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Quick Answer
Loans secured by a fund's portfolio Net Asset Value rather than LP commitments, used to fund investments, distributions, or bridge liquidity when traditional sources are unavailable.
NAV Lending (Net Asset Value Lending) is a credit facility secured by the value of a fund's existing portfolio investments rather than unfunded LP commitments. Unlike subscription lines of credit which are secured by LP commitments and typically used early in a fund's life, NAV loans are secured by the portfolio itself and are more commonly used later in a fund's lifecycle when most capital has been called. NAV facilities can be used for follow-on investments when reserves are depleted, funding distributions to LPs when exits are delayed, capitalizing continuation vehicles, and bridging liquidity gaps. NAV lending has grown significantly as funds seek financial flexibility beyond their committed capital. Loan amounts are typically 10-25% of the portfolio's NAV, with borrowing bases determined by the lender's assessment of portfolio quality and liquidity. Interest rates are higher than subscription lines (reflecting greater risk) and the loans may include covenants tied to portfolio concentration, NAV maintenance, and coverage ratios.
In Practice
A fund in its 8th year has fully deployed its capital but holds three portfolio companies with a combined NAV of $200 million that are 2-3 years from exit. The GP takes a $30 million NAV loan (15% of NAV) at SOFR + 5% to make a critical follow-on investment in the portfolio company closest to IPO, maintaining the fund's pro-rata position and protecting ownership. The loan will be repaid from IPO proceeds.
Why It Matters
NAV lending provides financial flexibility to funds that have exhausted their committed capital but still need to support portfolio companies or bridge to exits. However, it adds leverage and risk to the fund, and LPs should be aware when their fund uses NAV facilities. The growing popularity of NAV lending has attracted scrutiny from LPs and regulators concerned about hidden leverage.
VC Beast Take
NAV lending is becoming the new normal for established funds, but it's a double-edged sword. While it provides flexibility and can juice IRRs through faster distributions, it also adds complexity and risk. Some funds are becoming overly dependent on NAV facilities, essentially running their funds on credit. The real test will come when portfolio values decline and lenders start calling in these facilities during market downturns.
NAV Lending (Net Asset Value Lending) is a credit facility secured by the value of a fund's existing portfolio investments rather than unfunded LP commitments.
Understanding NAV Lending is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
NAV Lending 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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