IDEA Fund Partners, cited as the most active venture capital firm in North Carolina in 2016 by venture data firm CB Insights, is enabling its own investors to take advantage of a growing trend in VC fundings,:
These deals enable IDEA’s backers to participate directly in deals that include IDEA with their own money above and beyond money they have placed in any of IDEA’s Limited Partner funds.
In just the last three months, IDEA Fund investors have pour capital into three IDEA portfolio companies, each having recently announced capital closings:
- August – Mati Energy
- July – Pendo
- June – FilterEasy
“The transactions you listed are for LP co-investments made for IDEA Fund Partners’ portfolio companies,” Lister Delgado, managing partner at IDEA Fund, tells WRAL TechWire in response to questions about SEC filings made by the firm.
“Every time we make a fund investment we allow Limited Partners (our investors) to make additional individual investments in the companies we are investing in. It is a benefit to our investors as it enables them to put more into each of these companies.”
The fundings are not inconsequential in either size or in number of investors.
According to SEC filings made by IDEA Fund Partners,
- 7 investors participated in the $230,000 funding in Mati Energy
- 11 investors joined the $128,500 funding in Pendo
- 9 investors placed $135,000 in FilterEasy
“Basically, we pass on the opportunity for our investors to invest directly in each of these companies in addition to what the fund invests,” Delgado explained.
Equity Co-Investments are increasing in popularity, according to data from PitchBook and other sources.
Pitchbook says such deals quadrupled in recent years while Mergemarket reported that 56 percent of private equity funds offered co-investments in 2015
These co-investors “may benefit from lower fees or no fees in some cases, which would boost returns available to them,” according to Investopedia.
The co-investments were much smaller than the traditional fundings:
- Mati Energy announced a $2.5 million round of financing in April.
- Pendo closed on a whopping $25 million in July.
- FilterEasy announced $6.9 million last month.
But IDEA Fund Partners is clearly active in working with its investors interested in placing bets of hot companies across the firm’s portfolio.
SEC filings of a similar nature are listed for IDEA Fund totaling more than $400,000.
Here’s how Investopedia defines “equity co-investments”:
“Why would a private equity fund manager give away a lucrative opportunity? Private equity is usually invested through a limited partnership (LP) vehicle in a portfolio of companies. In certain situations, the LP’s funds may already be fully committed to a number of companies, which means that if another prime opportunity turns up, the private equity fund manager may either have to pass up the opportunity or offer it to some investors as an equity co-investment.
“Most limited partners pay a 2% management fee and 20% carried interest to the fund manager who is the general partner. However, co-investors may benefit from lower fees or no fees in some cases, which would boost returns available to them.
“A 2013 study showed that investor appetite for co-investment opportunities was at an all-time high. The survey of 140 limited partners showed that 73% had co-invested in at least one past portfolio company deal, while more than 75% reported they were looking for co-investment opportunities.”
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