VC fund investors not raising alarms over SPAC trend

Venture capital firms, formed to invest in startups, are increasingly becoming sponsors of SPACs, blank-check companies that bring later-stage businesses into the public markets. It's significant strategy creep, but so far there hasn't been much opposition from venture capital fund investors, known as limited partners.Be smart: SPACs are similar to VC in spirit and skills, which is how firms are selling it to their own investors. The big picture: More than a dozen VC firms have formed SPACs, with many more in the pipeline. Among them are Khosla Ventures, FirstMark Capital, Highland Capital Partners, Dragoneer, Tribe Capital, Lerer Hippeau, Greycroft, Foundry Group, Ribbit Capital and Lux Capital.What they’re saying: “This is a growth investment for the fund, it happens to be done in a different way,” says Lux Capital managing partner Peter Hebert. “It’s just a financing product in our view.”Between the lines: Limited partners seem mostly at ease. “This is just another tool in their toolbox,” explains an investor whose portfolio includes three VC firms that have formed SPACs."They're able to back founders from the seed stage to the public markets now, as efficiently as possible," another LP offers, referring to it as a "full-stack" approach.Yes, but: LPs who invest exclusively in early-stage VC funds aren’t quite as jazzed, believing it reflects diverted focus. Or, as one tells Axios: “None of my early stage funds better bring that noise!"Line of demarcation: Limited partner sentiment is impacted, at least in part, by whether they get to participate (i.e. aligned interests). In some cases, the VC firm uses fund capital, meaning that gains or losses are shared with limited partners. In some cases, such as Thayer Ventures, limited partners are offered co-investment opportunities in the SPAC.But, in some cases, the SPAC is either separate from fund LPs, or even a side hustle by individual partners in a fund. The bottom line: SPAC performance will ultimately dictate how long LPs stay aboard the train.

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