Klimaworks VC Liquidity Fund
Klimaworks Venture Secondary Fund

VC Fund Secondary: Buy the Winning Ticket at Halftime

Klimaworks Ventures provides structured liquidity solutions for private equity portfolios / solutions to the alternative asset class

Venture capital secondaries in top-tier, tech-enabled climate tech companies

Liquidity for early investors, staff and founders.

Capital ignition for climate tech founders.



Second is the new first

Venture Capital 2.0

We provide solutions to the problem of illiquidity of private companies
 

About Klimaworks

Klimaworks is a London based VC firm focused on venture capital secondary. We buy LP and GP interests in early-stage venture funds, and direct secondary in breakout portfolio companies. Our investors get discounted access to top-performing funds with established winners and unicorns, and we cut the typical 10-15 year VC holding period in half.

Our “Skip the J-Curve” strategy buys venture portfolios and companies when they are 5-10 years old, after winners have emerged and losers are marked down or written off. The first 5 years of most VC funds are usually high-risk with many failures. However, in later years portfolio value is more stable and concentrated in fast-growing companies, with exits and IPOs likely in 3-5 years.

Klimaworks has identified what it believes to be a significant and untapped market opportunity in the utilization of structured products to generate liquidity on private equity portfolios.

We have identified what we believe is a significant and untapped market opportunity in the utilization of structures to accelerate liquidity on private equity portfolios

The fund is a venture capital secondaries fund that will primarily acquire Limited Partner (“LP”) and General Partner (“GP”) interests in established venture capital funds

We purchase shares from early shareholders, founders, professional investors and employees who want to take a bit off the table. We also provide similar liquidity to investors in venture capital funds.

These types of transactions are known as “secondaries” and we are the first secondaries fund in Europe to focus exclusively on the climate tech venture space.

We focus on addressing the liquidity challenges that come from an extended life in private markets, outside of competitive primaries

We are backing companies solving the the world's largest problems in regions and sectors poised for rapid growth

We provide liquidity for shareholders of private companies outside of major funding or exit events. We work closely with the company founders and management, assisting with rationalisation of cap table or restructuring of the shareholder base.

We look for successful companies already being market/category leaders yet still in a high growth stage of their development, with proven revenue model and execution track record.

We typically invest between £1-7 million 
to acquire equity in growth stage companies where early shareholders - such as founders , CEOs, managers, business angels, employees and other early-stage investors - wish to obtain partial or full pre-exit liquidity.

(Sova VC Marketplace Fund: We typically invest at Late Seed 
and Series A stages, and our initial investment will commonly be in the range of €1.5-2 million, growing to 
as much as €4 million in a single portfolio company.)

Strategy

  • We predominantly provide secondary liquidity to early stage investors and existing or former employees, including the founders.  Our investment can also be combined with some primary capital for the company itself. 

  • We normally invest between major rounds of financing.

  • Our initial check size upon entry ranges between US$5m and US$15m and can potentially increase to >US$30m over the life of the investment. 

  • We are seeking minority positions which qualify for Board participation or extensive information rights, allowing us to be a reasonably active and value-added investor.

  • Within the tech universe, we are largely sector and business model agnostic as our later stage focus means that our target businesses are well proven in terms of product and sales viability.

Investment criteria

The secondary product requires us to be flexible and creative in our approach. Some of the criteria we are looking for:

  • Exceptional founding team that has built a market or segment leader.

  • Large and growing market allowing considerable further growth.

  • Run-rate revenues >= US$10m, or the visible achievement thereof, and 50%+ annual revenue growth.

  • Early stage shareholders keen to access liquidity for reasons unrelated to the company’s own prospects and founders welcoming us into the cap table. 

  • Visible path to future liquidity

Benefits

For Founders/Employees

  • Ability to get partial liquidity to cover lifestyle needs while not burdening the company cash flow.

  • Option to retain and/or capitalise on pre-emption rights at future funding rounds.

For the Shareholders

  • Opportunity to de-risk investment positions (fully or partially). 

  • Liquidity planning to fit investment horizon criteria or fund life limitations.

For the company

  • Rationalise a fragmented cap table and the associated shareholder management.

  • Restructure the shareholder base to achieve a more institutional profile.

  • Gain a constructive shareholder with domain expertise and regional network access.

  • Alleviate shareholder pressure for liquidity, which might otherwise restrict further company development.

A GROWING OPPORTUNITY IN DIRECT VENTURE CAPITAL SECONDARIES.

In a market where valuations and returns have shifted from public to private markets – and where capital inflows to VC are driving record competition for access to primary rounds in high-profile companies – our team at Alicorn leverages a unique investment strategy: by using our proprietary access to secondaries and investing in harder-to-access private companies. 

We focus on VC-backed technology firms at a late-growth stage and work with their leadership teams, existing investors, and other stakeholders, to facilitate secondary investments, in a bid to solve liquidity requirements. This is in addition to our participation in unique primary rounds.  

By targeting under-the-radar companies, we circumvent the demand for larger firms in the mainstream, and we invest instead in mature, high-growth, high-impact private companies with a clear pathway to profitability.  

While some companies will look towards an initial public offering or merger and acquisition as the culmination of their growth strategy, others are now choosing to defer their IPOs, and stay private for longer.

In fact, in the past two decades, VC-backed companies in the US had a median age of 11.4 years by the time they went public, nearly five years longer than the average age of companies pre-IPO in the decade prior.

This decision to remain private for longer increases the desire for liquidity by invested parties, thereby creating a demand for a secondary market.  

Secondary investments are proving beneficial to VC-backed companies that aim to provide liquidity to key stakeholders and adjust their capitalisation table for new long-term investors. 

Our portfolio companies are experiencing late-stage growth, between the Series C and E stages, and turning to the secondary market to address liquidity challenges because of their extended life in private markets.

Overall, they are leveraging the tailwinds of growth spurred by primary rounds and are moving past the initial stages of business and product development, which are often the riskiest stages in the life of a start-up. Access in the late growth stage is hugely competitive and usually reserved only for the largest names in VC. Using secondaries as a unique entry point we are able to access world-class ultra-competitive start-ups. 

Companies are creating most of their valuation in private markets before an IPO. Knowing when to tap into this stage is therefore critical. At Alicorn, we invest on a two- to four-year timeline with a clear runway for value accretion. 

Our access to VC secondaries come by way of our senior team’s relationship with VC managers, corporate leaders, and stakeholders, as well as our own investment into VC-backed companies. Over the years, we have built extensive knowledge of and experience within the secondary market through these connections, affording us information asymmetry in a highly competitive investment landscape. 

In the past, the path to maturity in most high growth tech startups led to one of two outcomes: either an IPO or the founder(s) exited the company. But with changing dynamics in the venture capital market this path has lengthened which has created a fresh set of scaling challenges.

Today, the timeframe for founders at a company at series A or B stage could potentially last up to ten years as they grow the business and continually raise its valuation. Yet founders are so laser focused on building products, and on the company’s survival, that they lose sight of the bigger picture — not just for their company but for themselves.

At certain points, life will tap them on the shoulder: the time may be right for them to pay down a portion of the mortgage on their homes, to invest in their children’s education, or simply to reward themselves for the years of effort to date.

Their ability to act on these triggers will depend on their personal financial situation. Founders often don’t receive bonuses and, more often than not, receive salaries below the market rate, at least during the early years. So there can be situations where they have worked for several years without investing in any personal assets. It’s easy to understand the frustration many founders feel as they build a company.

There comes a moment when founders need to be compensated. But if their wealth is tied up in the company, the thought of staying much longer to realise some of that value can lead them to the exit door.

If they feel they have no options to obtain partial liquidity, they may be more inclined to exit early rather than building something meaningful, impactful and of significant magnitude in terms of scale. Most founders hate fundraising. So, when they receive what appears to be an attractive offer to sell the company, they may be tempted to seize the opportunity.

Another cohort of shareholders looking for liquidity options are early-stage investors who no longer have the capacity or strength to invest in follow-on tickets. Almost every growth-stage company has such investors and as their ability to fund growth is exhausted, founders need to find new capital to achieve scale and realise their ambitions. These early investors are often looking for ways to exit and can be replaced with more institutional investors, with deeper pockets, and often more supportive capital, which can also contribute to bridge round financing.

Our $50 million fund is aimed at providing new liquidity options for early-stage shareholders and investors in high growth technology companies.

We will typically invest between $1.5 million and $9.5 million to acquire equity in growth stage companies where early shareholders — whether that is founders, CEOs, managers, employees, or angel investors or shareholders — want to obtain partial or full pre-exit liquidity.

Liquidity funding is a flexible way of allowing shareholders to realise early returns in between regular fundraising rounds. This allows them to exit partially or fully and provide returns to their own investors. What’s more, it simplifies the investor structure within the company.

I believe the role of venture capital should be to help nurture new, significant, sustainable, independent companies — not just food for corporates to stay relevant by acquisitions. As I see it, when founders walk away too soon, it’s the worst outcome for the community — and for society. It deprives us of potentially game-changing startups.

Liquidity has become increasingly important over the years as founders, employees and investors in startups have had to wait years to benefit from selling their shares and see returns on their investments, until the company exited. This is a problem as companies take longer to reach an exit than they previously did.

This is precisely where secondary solutions come in, providing liquidity to early investors, shareholders and employees of private companies. There are numerous circumstances under which secondary solutions to illiquidity are sought after. For funds, perhaps they are reaching their vintage life and need to offload certain investments in order to provide returns to their investors. It could also be that they simply need to re-balance their portfolios and the way to do this is to sell down some assets on the secondary market. For employees, personal circumstances may dictate such behavior, e.g. buying a house, going through a divorce or the birth of a child are all circumstances that may require access to some liquidity.

Skip the J-Curve.

Venture Capital is a high-risk game, especially in the beginning. Most startups fail within 5 years, and most VC funds end up with ZERO unicorns. However, after the first 5 to 7 years, you can usually tell if a fund is going to do well (or not).

What if you just show up at halftime and bet on the winner? 

That’s the core strategy of venture secondary: Skip the J-Curve. Avoid the early risk and uncertainty – just buy the funds and companies already doing well. 

Some fans need to leave the game early. Why not take their seat?

Many VC funds don’t make any distributions in the first 5 years, and most of them take 10-15 years or longer to fully exit. The lack of predictability and a long period of illiquidity makes venture capital a challenging asset class for all but the most patient of investors.

That said, top VC funds can perform far better than the rest of the market, and the best tech companies can turn into unicorns that generate 20X, 50X, or sometimes even 100X returns.

Skip The J-Curve: Buy VC Funds After They’re Already Winning

What if you could arrive at the game at halftime and bet on the team that was already ahead by 10 points? And what if you could buy that winning ticket at a discount? Imagine your friend called you up from the stadium and said, “Hey, I’ve got an emegency and have to leave the game right now – do you want my seat for half-price? I’ve also got a bet on the team that’s winning, but you have to stay until the end of the game to collect.”

Sound too good to be true? Well, it really does happen. Some fans who come to the game might need to leave early. Some investors in VC funds want liquidity before the fund term is over. Fans who leave at halftime will sell their seats at a discount. Investors who want early liquidity will take a haircut on returns in order to cash out immediately. This is the benefit of buying secondary in a VC fund after the first five years, aka “Skip the J-Curve.”

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Why VC Secondary? No “Blind Pool,” Faster Growth, Shorter Liquidity

Beyond upfront discounts of 25-50%, there are other key benefits to investing in VC fund secondary.

Because portfolio companies are already established and growing, buyers have a better sense of what they’re getting for their money – they aren’t investing in a “blind pool” of unknown future assets. After five years or more, successful VC funds should have established winners at Series B or C and perhaps even early exits and distributions. Seeing the first few years of performance in the rearview mirror provides insight into how well the fund manager is doing and how well the fund is likely to perform in the future. Again, it’s kind of like checking the score at halftime to see which team is ahead.

Because funds over 5 years old may already be making distributions, investor capital is returned more quickly, perhaps in just a few years. And because Series B and C winners are scaling up fast (often 50-100% or more annually), their growth rates tend to drive the portfolio. As these companies become unicorns, typically one large outcome will dominate the portfolio and drive a power-law distribution of returns.

Finally, the typical 10-15 year holding period for a traditional VC fund can be cut in half when buying fund secondary. This reduces the long illiquidity period of venture capital substantially, making it more competitive with other alternative asset classes such as private equity, private credit, hedge funds, or real estate.

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Fund Secondary vs. Company Secondary

Sometimes people may confuse buying fund secondary (partnership interests in a fund) with direct or company secondary (common or preferred stock in a company). Both types of transactions may be called “secondary;” however, they are quite different. Fund secondary is like buying a slice of the entire portfolio, rather than a stake in a single company.

Company secondary (also known as “direct secondary”) has become a popular strategy for retail investors to buy unicorns and get access to venture capital – although due to increased competition, there may be fewer bargains to be found than in the past. Because fund secondary is less common, and because there are often more sellers than buyers, significant discounts are typically available to those investors willing to buy a slice of the portfolio.

Another difference is that because funds contain many assets rather than just one company, they are usually more complicated to evaluate and diligence (especially for investors less familiar with venture capital). And because there are multiple companies in a portfolio, fund secondary is usually more diversified than direct secondary in a single company.

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Why are Discounts BIGGER for Fund Secondary than Company Secondary?

Fewer Buyers, More Arbitrage

Because there are fewer buyers specializing in Fund Secondary and because many sellers are competing for liquidity, buyers have greater leverage relative to sellers. Fund Secondary is a buyer’s market.

Basket of Assets, Harder to Value

Fund Secondary is often heavily discounted because it’s more complex to evaluate a basket of assets than just a single company. As former managers and LPs in over 40 venture funds, PVC has extensive experience evaluating multi-asset portfolios.

Unicorns Matter, Horses Discounted

Larger companies close to IPO or acquisition are in greater demand; smaller companies that are still growing are in less demand. Multi-asset portfolios are valued primarily based on current unicorns; future unicorns and other non-IPO winners are more heavily discounted.

Why do LPs and GPs Sell Winning Portfolios Early?

Non-institutional LPs may sell because:

  • HNWIs and family offices need liquidity when change happens (death, divorce, retirement)

  • Corporate LPs change strategy every few years, just as CEOs/CFOs come and go

  • LPs may need liquidity when purchasing a major asset (e.g., real estate)

  • Market volatility and uncertainty may increase the need for cash

Early-stage GPs may sell (or partner):

  • Sell a portion to show realized gains as they raise their next fund

  • Sell to generate cash for operational expenses, recycling, or distributions

  • Sell to hedge and take (some) money off the table

  • Partner (raise capital) to exercise pro-rata rights

  • Partner (co-invest) to increase investment in follow-on rounds

 

 

VC secondary opportunities arise because the seller is motivated, not necessarily because the asset is distressed. Seller motivations may include family offices liquidating positions due to a change in member status; corporates with a new exec making changes in strategy; and fund managers who want to realize gains to demonstrate performance or to make distributions. There may be a wide variety of reasons driving the need for liquidity, including but not limited to distress or downturns.

Conclusion

VC fund secondary combines the growth of venture capital with a shorter liquidity timeframe and the opportunity to invest at significant discounts. Buying fund secondary after the first five years of performance allows investors to pick funds that are already winning and return capital more quickly. Market downturns increase the need for liquidity, and since there aren’t many buyers for fund secondary, the discounts can be substantial.

Sometimes people really do need to leave at halftime. For those willing to stay until the end of the game, excellent seats are available.

Some investors may want liquidity before the fund terminates (which may take 12 to 15 years or more), and they'll sell at a discount to exit early.

Fund secondary is a buyer’s market because it’s tough to determine valuation and because there are usually fewer buyers than sellers. Downturns and uncertainty increase discounts even further. 

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Our Focus

Klimaworks Ventures  is sector agnostic and we like to invest in rapidly growing, venture-backed companies who have achieved a valuation of EUR 75m+.

We create direct exposures to exceptional companies by purchasing shares from employees or shareholders. We also create indirect exposures by purchasing individual LP interests from the investors of the venture funds that back them.

Edge Case:

We also have capacity to make investments that fall just outside the criteria of our core strategy. These edge cases might include providing liquidity to venture fund LP’s or a shareholder in a rapidly growing startup that just falls short of our minimum EUR 75m threshold.

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Our Investment Philosophy

We invest at at late stage growth, usually Series C+, and past key business and technology risks. We have a flexible ticket size ranging from $5m to $20m in company led secondaries and unique primary rounds. Our investments are driven by  strong technology thematics including data, cyber and enterprise software.

From AI-powered digital experience analytics to state-of-the-art hardware storage solutions, Alicorn invests in the most innovative under-the-radar companies that are poised to hyper-scale within a few years. We keep our sights locked on epicentres of technology and investing, with a focus on Tel Aviv where a new breed of innovators is emerging.

Who we buy from

Employees

who see a liquid market for their ESOP as being a major reason to join or stay at a ventures stage company

Founders

who often appreciate realising a small percentage of their holding to help temselves and their families along the journey

Early Investors

who like to realise some returns and reinvest the cash across another cohort of early stage startups

Venture Funds

who want to lock in some gains on their best performers or who are reweighting their porfolio

Our Process

Any secondary transaction involves at some stage the founder or CEO. Our process is designed around taking the distraction of being a market-maker on company stock away from management by reaching a quick clear investment decision with minimal fuss and overhead.

Transparency

No matter who the vendor of the shares might be, we require that the founder or the CEO be notified that the vendor is exploring a secondary transaction. Better still, the founder will already be in the loop before SecondQuarter is approached. We will often also speak to at least one of the company’s venture backer prior to engaging in serious discussion.

 

Timing

Assuming there are no external factors that delay the process for transactions between A$100k and A$1.5m we can generally reach an investment decision and a term sheet within 2-3 weeks of our first conversation. For transactions larger than this amount it is usually around 6 weeks.


Information

Our process is designed to ensure founders and management need not be distracted by the incessant email requests of a due diligence process. And we usually go out of our way to base our decision on information the company already has to hand. Typically 70-90% of all the information we require to make our investment decision is in a standard investment deck and dataroom. Aside from the commercial information, the key documents we will need to review are the investment deck, the cap table and the shareholders agreement.


Pre-emption rights

Many shareholders agreements contain preemption rights and whatever they are they must be followed. We will of course need to understand them before we commit down any path.