By Lawrence Delevingne and Joshua Franklin
BOSTON/NEW YORK (Reuters) - Glade Brook Capital Partners LLC, the venture capital firm led by Paul Hudson, is pitching a new fund to investors targeting the debt of private technology companies impacted by economic disruption from COVID-19.
The $1.5 billion Greenwich, Connecticut-based firm began marketing the Special Situations Fund last week and is targeting $100 million for it by the end of April, according to a pitch document seen by Reuters.
The fund will invest in preferred stock, convertible bonds and senior debt, in primary and secondary markets, in what Glade Brook sees as "high quality" but "dislocated" private technology companies, according to the materials.
"We see an extraordinary opportunity to invest," the marketing document says, given a recent shift in financing for private technology companies from traditional equity to debt as companies seek to avoid repricing their equity amidst the economic crisis.
The fund's first investment, according to a person familiar with the situation, will be a portion of a new $1 billion loan to Airbnb. Reuters reported Tuesday night that Airbnb was in advanced talks for new debt (https://www.reuters.com/article/us-airbnb-debt/airbnb-in-advanced-talks-about-new-1-billion-loan-sources-idUSKCN21W37H), just weeks after it closed a $1 billion investment from private equity firms.
Other investments could include loans to media, entertainment, cloud computing and fitness companies, with yields of between 7% and 12% and expected returns of between 25% and 50% over 24 months, according to the document.
"Going forward, I expect to see many more situations where private market lenders will be providing loans to struggling private companies which are unable to access liquidity from the syndicated bank market," said Leonard Klingbaum, a finance partner at Ropes & Gray, without comment directly on the Glade Brook fund.
Glade Brook, founded in 2011 by Shumway Capital Partners alum Hudson, pivoted in recent years from hedge fund-style investing in public securities to longer-term bets on the growth of private tech companies, a so-called growth equity approach.
Approximately two-thirds of Glade Brook's current portfolio includes businesses that have seen increased demand for their services amid the global economic and health crisis related to the coronavirus, according an email sent to Glade Brook investors on March 26.
They include the U.S. web-based pharmacy Capsule; Patreon, a digital platform for artists; and Instacart and Miss Fresh, online grocers in North America and China, respectively.
"We believe the crisis is accelerating secular trends already underway and will strengthen growth tailwinds long after the crisis," Glade Brook wrote.