The average prices paid for secondhand stakes in venture capital funds are falling amid concern about the real value of the startups the funds have invested in and public market volatility.

During 2015 the average price for venture capital secondaries -- stakes in established funds sold on by limited partners -- fell the most among all private equity style funds, according to figures from secondary advisory firm Greenhill Cogent.

Average prices as a percentage of net asset value fell from 82 percent in the first half of the year -- its highest since 2007 -- to 74 percent, according to Greenhill Cogent figures. And they have continued to fall in 2016.

Investor Markdowns

One big factor in the recent price decline has been the markdowns mutual fund managers like Fidelity Investments have taken on their startup stakes, according to Andy Nick, a managing director at Greenhill Cogent.

Since the beginning of the year Fidelity has marked down the value of its holdings in Canadian startup Hootsuite Media Inc., Dropbox Inc., web performance and cybersecurity company CloudFlare Inc., electronic signature technology maker DocuSign Inc. and data center hardware and software makers Nutanix Inc.
Funds with big exposures to unicorns -- private companies valued at more than $1 billion -- could trade at 60 percent of their NAV, according to Nick.

“Investors are getting skeptical that marks are not reflective of true value. They are worried that they might not get their marked value when they get liquidity,” he said.
Private funding rounds at flat or lower valuations and write-downs like those at Fidelity have had a “cascading” effect on secondary pricing, according to Sunaina Sinha, founder and managing partner at placement agent and secondary adviser Cebile Capital.

Investors now prefer funds with a diversified portfolio, rather than hefty exposure to a single unicorn, Sinha said.

Health-care Down

Health-care and life sciences funds have been particularly affected, with the average price falling from 84 percent in June 2015 to 69 percent in December, weighed down by the volatility in listed health-care share prices, according to Greenhill Cogent.

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