We could go on.

And then there are evergreen firms. In a nutshell, evergreen firms have open-ended fund structures with no termination date. As such, they are permitted to recycle capital from realized returns and aren鈥檛 bound by the same time constraints as a traditional VC firm. That means these investors are well-equipped to sit out sudden shifts or extended downturns in market cycles (such as the one we are potentially about to experience).

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The fact that evergreen firms can invest in a company through multiple stages means they aren鈥檛 as pressured to exit. Traditional venture funds often have less flexibility and may be pressured by their fund structure to cash out earlier than an evergreen fund might. Limited partnerships are typically family offices.

Recently, I happened to talk to two evergreen venture firms with the intention of getting a better understanding of what they do, and that got me thinking:聽 What advantages might the evergreen structure provide in fast-changing market cycles?

To find out, I talked to partners from and , both of which are evergreen funds 鈥� there鈥檚 estimated to only be a handful of such firms.

I also talked with a startup founder who has been backed by one of these firms to learn why he went that route.

Let鈥檚 dive in.

Maverick Ventures

Maverick Ventures launched in 2015 as the venture arm of 25-year-old, $8 billion hedge fund . The firm currently has $382 million in capital commitments and in a short amount of time has built up an impressive portfolio.

For context, over time, Maverick Capital and Maverick Ventures combined have deployed $1 billion in 94 private companies, had 24 IPOs聽 or acquisitions and helped create 11 unicorns. It was also among the first investors in . Rather than mixing public (hedge fund) investing and private investing, it launched Maverick Ventures.

The two entities have seen notable exits in DNA sequencing startup being by for $1.2 billion in 2018; going public in 2018; being acquired by for $4.4 billion in 2016. Another portfolio company, concierge medical services provider , recently went public.

Maverick has also invested in the likes of direct-to-consumer wellness brand (recently re-branded to hims and hers), Indian digital health care platform ; health benefits platform and India-based scooter startup .

I hopped on the phone with , managing director of Maverick Ventures, who told me that when the firm kicked off five years ago, evergreen funds were actually 鈥渧ery unheard of.鈥�

The fact that Maverick has hedge fund roots, giving the firm a footing in both private and public markets, provided a unique perspective, he said. (Hedge funds are financial partnerships that use pooled funds and employ different strategies to earn active returns for their investors, according to .)

Maverick鈥檚 strategy has always been to invest in the series A-C stages, which is earlier than hedge funds in terms of venture.

As you can probably tell from some of the investments mentioned above, health care IT makes up nearly 60 percent of the firm鈥檚 portfolio. Software in general is big for Maverick Ventures and the remainder of its portfolio is split among B2B and consumer startups.

鈥淲e don鈥檛 have fund one, two and three,鈥� Kinsella told me. 鈥淚t鈥檚 one perpetual pool of capital.鈥�

The fact that venture-backed businesses have been staying private longer is not always compatible with the seven- to 10-year fund life that typical funds currently have, said Kinsella.

鈥淢ost firms have not reserved enough to support a company through its private life. Sometimes, they need to force an exit and that is not always an optimal outcome for an LP or company,鈥� he explained. 鈥淲ith us, there鈥檚 no end to the fund life. So how we invest is never based on the dynamics of the fund itself. It鈥檚 always an economically rational decision.鈥�

He admitted, however, that evergreen structures are not for everyone when it comes to LPs.

鈥淚f you鈥檙e a pension fund or an endowment, your capital needs might be more near-term so you might be more apt to go with a closed-end fund to make sure you get your capital back at a certain point of time,鈥� Kinsella told 附近上门 News.

As such, evergreen fund structures lend themselves well to family offices, which usually have a longer time frame when it comes to investing.

鈥淭hey usually don鈥檛 want capital in the near-term for tax purposes,鈥� Kinsella said. 鈥淭hey鈥檙e more focused on compounding their returns. That said, there are endowments that have invested in evergreen funds.鈥�

Maverick鈥檚 model is based on that of . In fact, Sutter backed two of the companies that Maverick Ventures Managing Partner had started.

Founder perspective

I talked with , founder of newly branded, about his decision to take money from Maverick during his company鈥檚 seed round in the summer of 2017–just months before its launch. The company, formerly known as hims, shipped its first boxes to customers in late 2017 and saw $1 million in sales its first week.

Since then, the company has raised over $200 million with Maverick participating in nearly every round since. It also has grown to more than $100 million in revenue. The company , with over a $1 billion valuation, in early 2019.

For Dudum, acknowledgement by Maverick that health care-related businesses generally take longer to incubate was crucial in its decision to go with an evergreen firm as an investor.

鈥淲e were going after a really tangled complicated problem,鈥� he told me. 鈥淪o having an evergreen fund with that type of time horizon capability was really beneficial. The fund structure lent itself well to the nature of our business.鈥�

Long-term committed capital was appealing to Dudum, who wanted investors 鈥渁round the table at every stage of the company鈥檚 development.鈥�

Additionally, Maverick鈥欌�檚 鈥渦nique鈥� health care expertise has been valuable, with tactical advice through all the company鈥檚 stages, he said.

鈥淲e recently brought on a chief medical officer, who was at ,鈥� Dudum told me. 鈥淢averick was absolutely critical in making that happen.鈥�

Thomvest Ventures

San Francisco-based Thomvest Ventures is another evergreen fund based in San Francisco. Thomvest Ventures is not a traditional fund that raises capital from limited partners (LPs). Instead, it is investing the capital of one individual, , whose family owns the majority of Thomson Reuters.

I talked with , a managing director, who told me that there鈥檚 been an increased prevalence of large family offices in the VC industry, which has in turn been increasing the number of evergreen funds.

Butler has been working for Thomvest for two decades, and over that time he鈥檚 鈥渘ot bumped into that many firms that look like us.鈥�

With $500 million under management, Thomvest Ventures is one of the larger evergreen funds around. Its sweet spot is investing from seed to Series C.

Personally, Butler has backed nearly 60 companies, such as crowdfunding platform , as well as and small business loan provider . He saw a few exits late last year, including being to for about $750 million and for $150 million.

鈥淚t really does come back to the relationship with the principal sponsoring the fund,鈥� Butler told 附近上门 News. 鈥淚n some ways, corporate VCs could be quasi-evergreens because they too set aside funds and incentives. There鈥檚 that balance sheet of a corporate partner you could go back to.鈥�

Over the past seven to eight years, Thomvest has become vertically focused, 鈥渨hich has been a tremendously good thing鈥� for the firm, Butler said. The three verticals it鈥檚 focused on are fintech, cybersecurity and adtech/martech/salestech. Within that, it has a particular interest in real estate technology, believing that it 鈥渇eels like where online credit was four years ago.鈥�

鈥淚t鈥檚 really coming into its own,鈥� he said.

Thomvest prides itself on deep research projects that it conducts twice a year for months at a time–taking inspiration from journalists (which makes sense given its origin), according to Butler. The company鈥檚 principals and associates focus on a specific vertical, and consider things such as where that industry is going, and whether they are at the right place at the right time.

鈥淭hen we go look for the right team,鈥� Butler said. 鈥淚 believe the best companies have all sorts of investors competing to become an investor. It鈥檚 insanely competitive.鈥�

As we head into a challenging market cycle, it will be interesting to see what kind of role evergreen funds will play in supporting private companies and their ability to weather a potential (and likely) downturn.

Illustration:

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, Google鈥檚, , and also participated in the round, which brings the San Francisco company鈥檚 to $434 million, according to its 附近上门 profile.

Per itself, Collective Health鈥檚 mission is 鈥渢o make it effortless to navigate, understand, and pay for healthcare鈥� considering that so many employers today still rely on faxes and snail mail. Its software is designed to allow 鈥渟elf-funded employers to administer plans and control costs鈥� from a centralized platform. According to its website, the company has more than 200,000 members across the United States and 45 鈥渆nterprise clients.鈥� Besides Pinterest and Uber, it also names Zendesk, Red Bull and Restoration Hardware among its user base. In general, users come from a variety of industries including entertainment, gaming, publishing, retail, ecommerce, and transportation.

Collective Health aims to reduce administrative burden and waste via its 鈥渋mproved claims and payments technology.鈥� The company also has a patent-pending machine learning engine, CH Cortex, which it claims 鈥渋dentifies individual member care needs.鈥�

In a posted today, co-founders and said Collective Health plans to use the money in part to grow its product, engineering and sales teams. In addition to its headquarters in San Francisco and its engineering hub in Chicago, the company opened an office in Utah earlier this year that created 鈥渁n operational hub.鈥� Collective Health also plans to use the fresh capital to form 鈥渘ew partnerships with innovative health insurers, healthcare systems, and digital health companies.鈥�

In a , , senior managing partner at SoftBank Investment Advisers, said Collective Health鈥檚 business model and technology platform 鈥渁re not only helping employers understand and optimize their healthcare spend, they are also providing employees with a better healthcare experience.鈥�

Indeed, the company appears to be growing at a healthy rate. At the end of last year, Collective Health it had 鈥渁 100 percent renewal rate for eligible clients and grew its enterprise client base by more than 50 percent鈥� in 2018. It also noted that it surpassed 500 employees during the year with plans to hire hundreds more in Utah.

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