According to reports, the $2 trillion venture capital industry could see a 25% to 30% portfolio cut in the wake of Silicon Valley Bank’s collapse — a potential $500 billion cut.
“In the wake of SVB’s collapse, we expect greater valuation scrutiny and disclosure, especially as significant ‘trust’ capital from pension funds flows into these markets,” Bloomberg Intelligence analyst Gaurav Patankar wrote in a note Friday.
Some venture capital and private equity firms are turning to strategies of “stretching” and “pretending,” meaning they hold assets or back capital to avoid real price discovery. Examples of this include NAV loans that allow the general partner to borrow from a group of portfolio companies within the fund, available partner-led secondary structures in which the fund sponsor invests in one or more of the funds it already manages, Asset sales to new funds, and alternative financing through private credit.
But these approaches can only delay but not deny the underlying problem of “flaky” and “unrealistic” risk valuations.
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