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Silicon Valley investors have a certain traditional playbook: Trade their money for shares in a privately held company, and if the company succeeds, those shares are worth a lot.
But one big-name firm, General Catalyst, is weighing an additional business that would represent a new evolution in the Silicon Valley investing playbook that its peers have yet to broach: A credit fund that would lend money to startups, Recode has learned. The firm was telling entrepreneurs this summer that it was planning to launch such a fund, according to a person briefed on the talks.
General Catalyst, which has made early investments in hits like Airbnb and Snap, declined to comment.
If the firm goes through with the credit fund idea, it would mark the latest attempt by venture capital firms to serve as more of a one-stop shop for entrepreneurs. In recent years, there have been firms known for investing in early-stage companies that have added funds to back late-stage companies; late-stage firms adding early-stage funds; U.S. firms adding China funds; and China firms adding U.S. funds — all part of an effort by investors to take advantage of a decade-long global bull market by making more bets in the technology field.
At General Catalyst, a credit fund is one of several new business ideas that have been under consideration to expand the firm. Why expand? It might have to do with an unusual move that the firm is plotting: General Catalyst is reportedly selling some of itself to Goldman Sachs, a first-of-its-kind deal in which a venture capital firm’s leaders pocket some money in exchange for forfeiting some control of the partnership.
Alternative asset managers like Goldman Sachs’ Petershill unit sometimes prefer to invest in firms that have multiple business lines — since that diversification reduces risk, making for a more attractive investment.
The talks about a credit strategy at General Catalyst date back to the middle of last year, when the venture capital firm was looking into the idea with Keri Findley, a big name in the hedge fund world from her time at Daniel Loeb’s Third Point, according to a person familiar with the matter. Findley is still advising General Catalyst portfolio companies like RealtyShares in an unpaid capacity, but isn’t currently planning to take over a credit fund if it is launched.
A person who could be involved as the firm considers expanding into things like credit is Ilan Stern, a past investor at George Soros’s family office and a friend of Findley’s, people familiar with the matter say.
It’s unclear what exact shape the credit fund would take. It could simply offer venture debt like Silicon Valley Bank does already. Or it could choose to extend credit to the fintech startups in its portfolio to be used for their customers.
One thing General Catalyst has considered in the past is including some long-term debt, a convertible note and an equity stake in every firm investment, a person familiar with the matter said.
Any of these approaches would mark a big change from what venture capitalists typically do. General Catalyst raised its biggest venture fund yet, at $1.4 billion, earlier this year.
Findley, who has been the subject of a federal probe into some of her trades, originally specialized in credit at Third Point. One of the most prominent women in the finance industry, she has been advising several venture capital firms and talking with them about possible full-time roles since moving to California in early 2017. She very well could end up taking a board seat on behalf of General Catalyst at one of its portfolio companies, one person familiar with the matter said.
Findley is very much in demand in Silicon Valley: She had previously been informally advising Social Capital, the controversial investing firm founded by Chamath Palihapitiya, when it, too, was considering a credit fund. But Palihapitiya scrapped that plan earlier this year and Findley’s relationship with Social Capital has ended.
This article originally appeared on Recode.net.
