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University, Pension Funds, Pulling VC Investments

In a sign that the financial crisis is extending to private companies, universities and pension fund managers are divesting their holdings in VC firms, depressing their values by as much as 50 percent, Bloomberg News says. According to Hans Swildens, principal at a San Francisco-based firm that buys venture stakes, investors have stakes worth more than $2 billion up or sale, more than double the $800 million at this time last year. Swildens said the glut of stakes up for sale reminds him of the beginning of the VC slowdown in 2000. "2009 will feel like 2001," Swildens told Bloomberg, adding that the current environment feels like the third quarter of 2000, he said. "Everyone knew the market had changed."

According to Bondurant French, chief executive officer of a firm that advises clients on private-equity investments, venture capital funds are changing hands for as much as 50% less than their original value. He said investors were willing to take a loss because there they have few other ways to liquidate their holdings. In fact, many pension funds have caps on their exposure to alternative investments, which often forces investors to sell their VC holdings even if they haven't lost money.

Universities and pension funds commit pools of capital as large as $2.5 billion to VCs, which invest that money over 10 years. The VCs don't collect from the funds until they've identified which startups to invest in. Investors are later compensated when startups are bought or have initial public offerings.

Read the whole story at Bloomberg News »

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