Serving the Underserved: Fund Finance for the Lower Mid-Market
In June we were named Fund Finance Lender of the Year at The Drawdown Awards 2026, being selected by a panel of judges from a shortlist that included some of the most established names in the market. It's a fantastic achievement and standout moment for our team, but more than that, we think it highlights the importance of innovation in fund finance in solving the liquidity needs of lower mid-market managers, a group that is typically underserved. Emily Rose, our Head of Origination, discussed some of this in her interview with The Drawdown following the win.
Managers need liquidity at different points in a fund’s life, and the tools to provide it are familiar features of the market. Sophisticated fund finance has long been readily available to the largest managers. However, for lower mid-market private equity and venture capital managers, appropriately-sized solutions have often been more difficult to access.
This blog touches on why fund finance is an important strategic tool and what managers should consider when choosing these products. It expands on how Balance’s flexible structuring is helping meet the needs of the underrepresented lower mid-market managers.
How financing needs vary across the lifecycle
Managers need liquidity at different points in a fund’s life, and for different reasons, such as:
At fundraise, to help fund a GP’s own commitment to the new vehicle;
During mid-life, to accelerate follow-on investment without drawing down further LP capital;
At maturity, to unlock value from a portfolio that still has upside but limited remaining dry powder; and
Across a manager’s business more broadly, such as to support succession planning and platform growth.
Two market trends are making some of these needs more prominent:
GPs are often making larger commitments to their own funds, with the fundraising process benefiting from stronger alignment with LPs.
Alongside this, tough exit market conditions mean fewer liquidity events are available from earlier vintages.
This often means that management fee income alone may not be enough to service the debt quantum necessary to bridge the gap, and more managers are looking to NAV facilities to unlock liquidity at the fund level, whether to fund follow-ons, support distributions or bridge to an exit.
An innovative approach, alongside flexible structuring, is often required to solve the complex challenges managers are facing.
Matching the tool to the requirement
At Balance, we have three flexible products to help clients through these challenges:
NAV facilities: lend against the value of a fund's underlying portfolio, typically for funds with minimal remaining uncalled capital. They're commonly used to provide liquidity for follow-on investment or to support distributions, and the structure, term and pricing are usually shaped around the specific asset pool being financed rather than a standardised template.
GP commitment facilities: allow a manager to borrow, typically against management fee income, to help fund their commitment into a new vehicle.
GP hybrid facilities: combining elements of both: a manager can borrow against a broader collateral pool including the management fees and the net asset value of the GP’s commitment and carried interest. These are particularly relevant where management fees alone wouldn't be sufficient to underwrite the debt quantum a manager needs.
Why have these liquidity solutions been less available for smaller managers?
The availability of these products is typically concentrated towards the larger end of the market. Lower mid-market private equity and venture capital managers have less access to NAV and GP financing, not because their needs are any less real, but because facility sizes below c.£50m often fall outside lenders’ appetite.
Balance is a specialist NAV and GP finance provider focused on this underserved part of the market and therefore focused on filling this gap.
When a single collateral source isn’t enough
One example that demonstrates our innovative thinking and flexible structuring is when a growing manager launches its next fund.
At that point, the manager may need to fund its own GP commitment to the new vehicle as well as cover working capital, at precisely the moment its cost base is highest and the new fund’s management fee income hasn’t begun to flow. A conventional GP commitment facility underwritten against management fee income alone may not support what the manager needs and covenant tests against EBITDA alone during that early period risks a breach, not because there are any concerns with the business, but because expenses are relatively high for a given period.
This is where bringing more than one source of collateral into the analysis matters. Rather than relying on management fee income alone, Balance can also consider additional sources, such as carried interest and GP co-investment. This broader collateral pool can support a facility through a period before the new fund has grown and matured.
Flexibility demonstrated in action: A recent case study
We recently provided a bespoke £23m hybrid product to a global VC fund manager. This deal highlights our ability to be flexible and truly meet our clients’ needs. The broad collateral pool included management fees, GP commitment and carried interest allowing us to reach the workable size for the manager’s requirements.
Furthermore, our flexible use of proceeds clause enabled the manager to deploy the facility across multiple financing needs allowing them to satisfy their short-term liquidity requirements while optimising their longer-term growth strategy
“We chose to work with Balance Strategic Capital because they truly understand the complex liquidity dynamics of a scaling venture capital firm. By underwriting across a broad collateral pool, they provided us with a bespoke, hybrid financing solution. This highly flexible facility gives us the optimal runway to fund our GP commitments and aggressively expand our platform into new strategies, without having to rely on the timing of asset realisations”
- General Partner & CFO, Global VC Fund Manager
If you're thinking through how a NAV, GP commitment or GP hybrid facility might fit your fund's next stage, we'd welcome the conversation.