Buyout Values Drop Below Venture


In the last few months, valuations of basically every asset class have taken a dive on the secondary market – but damage hasn’t been evenly distributed.

Lately, buyout stakeholders are seeing values decline at a faster rate than venture funds, according to secondary market maker NYPPEX.

As of the end of January, the firm reported, the median bid for venture fund stakes on the secondary market stood at 47.6% of net asset value (NAV). The median buyout fund bid was lower, coming in at 44.3% of NAV for buyout funds.

NYPPEX managing member Laurence Allen says that’s a big reversal from a year ago, when buyout funds typically traded at higher valuations than venture stakes. However, he says it’s likely the spread will widen.

That said, both asset classes have taken a beating in the past year. In January, 2008, venture and buyouts stakes on the secondary market were fetching median bids of 78.6% and 80.8%, respectively.

Allen attributes the relatively stronger performance of venture assets in part to venture capitalists’ longstanding aversion to debt. Because buyout fund investments tend to be highly leveraged, partners can see their equity stake wiped out when valuations decline sharply. Also, portfolio companies with debt will have more difficulty servicing loans and obtaining refinancing under current conditions.

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