Continuation fund is a GP-led transaction where assets transfer from an aging fund into a newly raised vehicle, often with LP choice to sell, roll, or mix.

How it works

The GP selects one or more portfolio companies—usually mature winners—and negotiates a sale price from the old fund to the continuation fund. New and existing capital funds the purchase; proceeds distribute to selling LPs. Rolling LPs continue exposure; exiting LPs get liquidity before a traditional exit. Independent fairness opinions and LPAC review address conflicts. Pricing, fee reset, and carry terms differ from the legacy fund. More common in private equity; venture and growth managers use variants when IPO or M&A timing is unclear but the asset still has upside. Founders may see board continuity or refreshed governance depending on buyer composition.

Why it matters

• Founders: Your investor may remain through a continuation fund instead of pushing a near-term exit—clarify support for follow-ons and timeline expectations.
• Investors (LPs): Liquidity option versus continued illiquidity; diligence focuses on pricing fairness and GP incentive realignment.
• GPs: Extends hold on high-conviction assets while returning capital to LPs who want out—manages DPI and fund life limits.

Common mistake

Assuming continuation funds always benefit founders. New fee layers, leverage, or pressure to monetize later can change investor behavior versus the original fund.

Related ideas

Continuation vehicle, GP-led secondary, fund restructure, DPI, and LP roll are closely related terms.