Prospect Venture Partners
created surprise and unease last week when it decided $150 million was not
enough to support a new fund and released its LPs from their commitments. It
now remains to be seen if the decision turns out to be the canary in the coal
mine warning about the dynamics driving limited partners from the U.S. life
sciences sector.
There is no doubt that five
years ago a top-tier VC like Prospect wouldn't have gotten hung up on one LP that
couldn't commit to a new fund. But the list of issues LPs now face is daunting:
illiquidity and the length of time their money is committed in venture funds,
along with the fact that there are no longer up rounds that allow them to mark
up their investments, while fees and early write-offs create a drag on
performance.