| Over 300 organizations rely on The Information for exclusive insights into public and private companies, including in-depth analysis of the ways in which tech moves markets. Click here to contact our corporate and enterprise team to learn more. Welcome back! All the glory within venture capital firms goes to dealmakers who find the next big investments. But a new group that also focuses on selling rather than just buying is now playing a crucial role in the firms as they struggle to return cash to their clients. Former bankers or private equity investors at large VC firms such as New Enterprise Associates, General Catalyst and Lightspeed Venture Partners, for example, have recently started to focus more on potential sales of their portfolio companies. "We, as an industry, have an inventory problem," said Ronan Kennedy, whose job is to generate cash through sales at B Capital, a VC firm started by Facebook co-founder Eduardo Saverin and former Bain Capital executive Raj Ganguly. "This is becoming more and more frequent: having someone focused on the portfolio and generating exits." The assignment is sensitive and the work is often stealth, with titles that vary in explicitness. It is focused less on portfolio winners and more on startups that need an extra hand spiffing up for potential buyers. VC firms are typically careful not to be seen as wavering in their faith in founders' startups. Those startups don't want for-sale signs hung on their doors. But something's got to give. VC portfolios have gotten bigger but less liquid, while the endowments and pension funds that are their clients need cash. Initial public offerings are at historic lows. More sideways mechanisms for VC firms to generate cash, like secondary sales, often only work for their best-performing companies. The job isn't like that of an auctioneer. VC firms have minority stakes in startups, which curtails their power to force sales. And they are cautious about spooking founders or appearing eager to sell out. M&A is, after all, "an emotional sport," Kennedy said, adding that the work requires a "softer sell." More firms are seeing the need to devote time to it. At Lightspeed, General Catalyst and NEA, relatively junior investors with past M&A experience in private equity, growth equity and investment banking have taken particular interest in it. Those include Lightspeed's James Ephrati, General Catalyst's Chris Kauffman and NEA's Arjun Jain, people familiar with the matter said. Other large firms that have invested heavily in recent years such as Tiger Global Management and Coatue Management have also tapped staffers internally or hired new ones to work on M&A. Their task is increasingly critical. Tariffs and lingering antitrust concerns have made a wave of exits unlikely anytime soon. The companies least likely to find buyers are bigger, more mature ones that account for big chunks of portfolios and were once worth more than they are now. Young companies with "less valuation baggage" are easier to sell, according to PitchBook. In the first quarter this year, 52% of VC-backed companies that were acquired had only raised seed funding, the highest percentage recorded in the past decade. "If you're one of five VCs around the table, building consensus is always the challenging part," Laura Boyd, a former investment banker who has an M&A role at VC and growth equity firm Norwest, told me earlier this year. But, she added, "it's getting easier" as startups and VC firms come to terms with lower valuations than they achieved in 2021. Boyd joined the firm in 2019, and she casts her work as a benefit to startups that need more guidance or introductions ahead of a potential sale. "It seems hugely unfair to tell a private company: 'Go be attractive to Microsoft,'" she said. VCs now have to focus on selling much as public market investors and private equity firms do. "The initial model for venture was, you have to pick a winner. But as portfolio sizes and fund sizes increase, picking a winner isn't the only thing you have to achieve to be a high-performing fund," she said. She's careful not to take credit for any specific deal. "M&A isn't a switch you can simply flip when you're ready to sell your company. It's the culmination of years spent building relationships, aligning strategies and navigating a multistage process that unfolds over time," she told me this week. B Capital's Kennedy, whose title is vice president of capital advisory and corporate development, joined the firm in 2020 after stints at Goldman Sachs and Microsoft's venture fund. How his role has evolved reflects the VC cycle over the last half-decade. First he focused on helping the firm's companies raise money from late-stage investors. Later he helped those companies do acquisitions. Only recently has his job turned to selling. At tech investment conferences, he meets with corporate development executives at publicly traded and late-stage private tech companies, as well as bankers. Recently, he's been focused on finding deals where two private companies combine, so he has been trading ideas about portfolio companies with other VC firms. "It's a little bit of a game of Go Fish. 'Do you have a two of hearts?'" he said. "You do some matchmaking and exploration." | 
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