LP warehousing solutions - LP co-investing to bridge an equity gap of the GP, then gets reimbursed
Hello,
First post on this forum after hours of reading for years ! I am writing my end of studies thesis and was wondering if anyone had insights on "warehousing" solutions offered by some LPs ?
I heard (and i may not exactly be correct in what i understood) that some LPs could lend money to GPs (in addition to their subscription) to help the GP if he struggles raising enough money to do its first closing ?
For example : lets say I am GP1, i want to raise EUR100m for my first fund with a first investment (a company) that I am supposed to buy very soon for 50m. I am struggling to raise those 50m, i just got 2 LPs which gave me 10m each (i.e. 20 in global then). I still need 30m to buy my first asset.
I heard that some LPs could, in such situations, lend me the remaining amount so as i can realize my first acquisition while i raise this missing equity. Once i have raised this amount (i.e. the 30 missing millions) i will repay the LP (with interests) and everything is back to normal. In terms of structure, if i understood it correctly, the LP that is lending you the money is actually investing himself in the asset you want to buy and becomes a shareholder of the asset (co-investing then?). If i am able to raise the amount i did not have to do the first closing, i repay the LP and buy back his shares of the asset. If i do not have it, the LP keeps the asset.
Is it something that exists ? On the paper, it would make sense i guess ? I also guess interests would be quite high, to reflect the risk taken by the LP.
Do you know any LP that can do that ? I heard that Harbourvest could do such a thing ?
I look forward to having your thoughts / knowledge on that,
Best from Spain,
Sebko
This concept is typically called “warehousing” and is done by LPs to support first time funds. The LP will in exchange for helping a fund start expect coinvestment and / or a fee break on their primary fund commitment.
Thank you for your answer Franco ! Do you know any "famous" LP that is used to do that by any chance ?
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