In recent years, the venture capital landscape has undergone a significant shift, with initial public offerings (IPOs) becoming scarce. As a result, limited partners who invest in venture capital funds have been facing a substantial challenge: a severe lack of liquidity.

The shortage of cash returns has been particularly problematic for high-net-worth individuals and their small family offices, which manage the assets of affluent individuals and have made substantial investments in VC funds.

Entrepreneur Mike Hurst experienced this issue firsthand. After selling his payments startup, Exactuals, to City National Bank in 2018, he invested a significant portion of the proceeds into tech stocks and venture funds.

However, when the tech stocks plummeted in 2022, Hurst found himself in a difficult situation, as he told TechCrunch that he lacked sufficient free cash to fulfill his VC fund commitments.

“Venture capital firms continued to request capital calls and new investments, but I was reluctant to mortgage my house, take out a margin line, or sell Amazon stocks at $90 when I was confident they would rebound to $210,” he explained.

This experience inspired Hurst to create a credit product that would enable limited partners to borrow funds secured by their LP position in venture funds.

Hurst’s vision materialized into Turbine, a debt platform designed for limited partners in private equity and VC. The company is emerging from stealth mode on Friday and announcing that it has secured a total of $22 million in equity funding, co-led by Alpha Edison and TTV Capital, with participation from Fin Capital, B Capital, and Sozo Ventures.

Additionally, Turbine has obtained up to $100 million in debt from Silicon Valley Bank to support its lending activities.

Turbine provides limited partners with a means to access funds using their fund stakes as collateral, similar to a home equity line of credit or a margin line that utilizes stock holdings.

Gardiner Garrard, co-founder and managing partner at TTV Capital, expressed his enthusiasm for Turbine when Hurst pitched the startup to him.

“I had numerous instances where limited partners approached me, seeking liquidity, but there were limited options available to help a single investor in a fund access cash,” Garrard said.

Garrard explained that TTV could have sold some stock in a portfolio company on the secondaries market to assist the investor, but he was hesitant to sell an asset prematurely to cater to the needs of a single LP.

Alternatively, the LP could have attempted to sell their stake (known as LP interest) in the fund, but such deals often come with significant discounts, meaning the LP would likely have to sell the stake for less than its actual value.

Turbine claims to offer investors liquidity based on the appreciated value of their position in venture funds without requiring them to relinquish potential future upside. For instance, if an LP’s initial $3 million investment in a fund has grown to $10 million, they can use that $10 million valuation as collateral for their loan.

However, these loans come with a significant cost, with interest rates currently around 9% (the prime rate is approximately 7.5%, making many loans expensive).

Garrard argues that this rate can still be considered reasonable and more affordable than the cost of selling the stake on secondary markets at a loss or discount.

Turbine’s initial customers are the five venture firms that backed its equity raise, with the general partners of these firms already offering their LPs access to Turbine’s credit product. Hurst stated that the company plans to expand its product to more VC funds following today’s announcement.

“I was surprised that we didn’t have a solution like this for our limited partners before,” Garrard said.