Investment Practices

Distressed Venture Capital

Strategic Philosophy

Traditionally, venture capital has been an asset class that offers the potential for high returns and explosive value, though it presents risk in the form of high deal-loss ratios, long holding periods, and technology development risk. Guggenheim Venture Partners exposes investors to a new venture model. Its strategy aims to achieve great returns for its investors while minimizing the downside risks.

A Unique Formula

As the leader in this field, the GVP team excels in identifying distressed or “stranded” technology situations with high potential. GVP has the flexibility to invest as either a sole investor or as part of a syndicate, seeking to recapitalize venture-backed companies in some form of distress or to form new companies around technology that has been developed but not realized. In doing so, GVP combines detailed due diligence and deep understanding to provide our clients with profound advice and actionable insights that lead to favorable outcomes:

  • Identify and build start-ups with a head start in technology
  • Rebuild and refocus distressed technology companies
  • Foster, grow, and guide these companies to success

The Inherent Advantages

GVP is strategically positioned to fund restarts or form new start-ups around IP purchases and spin-outs. Leveraging previous investment in these companies and their technologies allows GVP to offer tremendous upside while simultaneously limiting risk factors. With developed technologies and products that may already be on the market, potential portfolio companies are forced to address many of the inherent technological risks prior to GVP’s investment, which exposes GVP and other investors to less development risk and lower expected holding periods. The market for distressed tech investments also allows for early-stage valuations despite the companies’ advanced maturities, preserving the potential for high returns.

Capitalizing on Market Dynamics

The crash of the tech bubble has left a lasting impact on the venture capital landscape. Since 2000, the percentage of venture capital funds invested in restarts has risen sharply. Investment in later-stage companies has also increased, while the percentage of funds invested in early stage companies has fallen.

Rise of the Restart

Changing market dynamics have opened up great opportunities in restart investing as the amount of stranded capital has increased. An estimated $28 billion in stranded capital currently resides in venture-backed companies that have been unable to exit.

Many companies with stranded technologies are unable to raise funding for reasons that are investor-related, rather than the consequence of poor performance. Companies that are meeting milestones and have strong growth are frequently stranded because of investor fatigue, investor distress, or syndicate disparities. These companies are strong candidates for successful restarts because the problems they face are due to issues with their current investor base, and their technological development can be leveraged in forming new companies.

Stranded Capital by Industry

Guggenheim Venture Partners targets software, communications, digital media, semiconductors and electronics; these area represent the largest amount of stranded capital in the VC market. Furthermore, the more high-tech the deal, the greater potential there is to underestimate its upside.

Guggenheim Venture Partners’ distressed venture capital strategy targets high tech companies that are under-capitalized and experiencing a disconnect in the expectations held by management, investors, and the board. Within this strategy, the more high tech the products, the better. The firm specializes in software, communications, components, digital media, networking. As seen above, GVP does a significant amount of its investing within the sectors with the largest stranded capital, namely software, communications and semiconductors.