Zurich-based venture capital firm Lakestar has closed a $265 million continuation fund, supported by Lexington Partners as the lead investor, along with Industry Ventures, Performance Equity Management, and other secondary investors.

This fund is one of Europe's largest to date and involves a select group of premium companies from four of Lakestar's existing funds, although specific companies have not been disclosed.

The launch of this oversubscribed continuation fund aligns with a broader trend of companies staying private longer, prompting venture capital firms to explore alternative strategies for ongoing investment and maximizing returns.

Continuation funds are increasingly popular due to subdued IPO markets and longer exit horizons, allowing VC firms to retain mature companies longer for potentially higher returns and to provide liquidity options for limited partners.

While traditionally more common in private equity, the use of continuation funds is now being adopted by VC firms to extend holding periods and optimize investment outcomes.

Industry-wide, US firms like General Catalyst, Lightspeed, and NEA have launched similar continuation funds, with European firms such as HV Capital closing a €430 million vehicle in 2022.

Lakestar's founder and chairman, Klaus Hommels, highlights the fund as among the largest in the European VC sector and notes his background with early investments in Facebook and Skype.

Lakestar's most recent fund was a $600 million early and growth-stage fund raised in April 2024, and the firm is reportedly seeking an additional $300 million for a European defense fund, reflecting increased regional defense spending.

Alongside the continuation fund, Lakestar is raising this additional $300 million fund focused on European defense technology companies.

Although specific portfolio companies involved have not been disclosed, partial stakes were likely transferred to maintain upside potential, providing liquidity to limited partners and extending exposure to portfolio companies.