Coming Soon: Buyout Annex Funds?

Last month, we reported that venture capital firm Kleiner Perkins was raising a series of annex funds, in order to support older portfolio companies. I’d expect this strategy to become a trend not only among other VC firms, but among buyout firms as well.

Remember, buyout firms don’t typically hold much dry powder for follow-on investments, but they’re facing the same exit roadblocks that are stymieing Kleiner Perkins. If a buyout firm raised a new fund in late 2006, and then quickly blew through 85% (or more) of the capital – which many did – then what does it do when one of its portfolio companies needs a few million to avoid defaulting on its debt? The answer is likely to be that it goes back to LPs, with hat in hand. What totally unclear, however, is if LPs will oblige.

This is kind of what we saw last week with Bain Capital, although it’s asking LPs for follow-on investment dollars by proposing an ammendment that would defer management fees. Has anyone seen a more traditional LBO annex fund yet? If so, please let us know…