Welcome back to Office of the Venture CFO, our monthly series where we talk to the people running finance at top venture firms. If you missed last month’s issue with Dave Rivinus from 01 Advisors, you can catch it here.
This month we’re sitting down with Mike Witkowski, CFO at Eniac Ventures. At his prior firm, Primary Venture Partners, he led the structuring of one of the more creative secondary liquidity transactions in recent venture memory. We were excited to hear all about it from Mike, as well as learn from him what GPs should look for when they’re looking to hire their own CFO.
The Deal That Hadn’t Been Done Before
The transcript below has been edited for length and clarity.
Venture5: Let’s start at the beginning. What problem were you trying to solve?
Mike Witkowski: The problem we were trying to solve at Primary was the one VCs have been dealing with for a few years now: not enough liquidity, not enough cash being returned to LPs. We had a 2015 vintage fund that had delivered slightly over 1x DPI. We wanted to make sure we could deliver meaningful returns back to our investors at meaningful value. We connected through StepStone, who had just raised a secondary fund. The GPs spoke at a high level about the economic framework, and then I came in to figure out how to structure it.
Venture5: What were you specifically trying to accomplish on the structuring side?
Mike Witkowski: A few things simultaneously. I wanted to sell as much as possible at the best possible tax terms, specifically preserving the qualified small business stock exclusion for LPs. I also wanted to make it easy for all parties involved and avoid triggering ROFRs and co-sale agreements across 20-plus portfolio companies. Taking all of that together led to what I believe was a first-of-its-kind solution. The effective tax rate for our LPs ended up being less than 5%.
“The effective tax rate for our LPs ended up being less than 5%.”
Venture5: Walk us through the structure itself.
Mike Witkowski: What we landed on was an affiliate transfer to a disregarded tax entity, and then selling that entity to StepStone. That’s the uniqueness of it. We couldn’t do a continuation vehicle and didn’t want to. As an exempt reporting advisor, that structure doesn’t sit well with the SEC, regardless of whether you collect fees or not. We didn’t want to take that risk, even though it’s a gray area. The other options we looked at either triggered the ROFR and co-sale maze or would have invalidated the QSBS exclusion. If we’d done a tender offer on LP interests directly, LPs lose that tax benefit. So we had to find a way to sell individual portfolio companies without creating that problem, and the disregarded entity structure is how we got there.
Venture5: And the ROFR piece. Why was that such a priority to avoid?
Mike Witkowski: If you’re subject to ROFR and you decide to sell, you have to offer it to other investors on the cap table first. Doing that across 20-plus companies would have created a massive admin burden for everyone involved. We didn’t even want to open that can.
Venture5: There’s a confidentiality benefit here too that doesn’t get talked about enough.
Mike Witkowski: Right. Because you’re selling an entity, not individual portfolio companies, you don’t have to disclose the price at which you sell. That’s important for the portfolio companies themselves. They’re not seeing a per-share price attached to their name in a secondary transaction.
“Because you’re selling an entity, not individual portfolio companies, you don’t have to disclose the price at which you sell.”
How the Deal Actually Came Together
Venture5: This deal sounds clean in retrospect, but the path there probably wasn’t. What were the key learnings?
Mike Witkowski: The biggest one: never talk with your lawyer and your tax people separately. Get them in one room at the same time. That’s what actually made this deal happen. Initially when I spoke with our legal team, they gave us the typical solutions: individual sale of portfolio companies or a tender offer on LP interests. When I spoke with the tax team separately, they mentioned the disregarded entity concept. But without the LPA framework, I wasn’t sure it would hold up legally. The moment I got both tax and legal on the same call, the deal crystallized. That’s when we brought it to StepStone and said: here’s how we want to do it, does it work for you? And it did.
Venture5: And the second learning?
Mike Witkowski: Never take no for an answer. If there’s a will, there’s a way.
“Never talk with your lawyer and your tax people separately. Get them in one room. That’s what allowed us to make this deal happen.”
Three Paths to VC Liquidity
Venture5: Since you did this deal, have you seen other structures emerge for solving the same problem?
Mike Witkowski: Yes. I’d call it the three pillars of generating liquidity in venture. What we did at Primary is one of them, and we’ve since used the other two at ENIAC as well. Liquidity is something we think about very deliberately here. In our 2015 vintage fund, approximately 90% of the liquidity returned to LPs has been GP-engineered. The second pillar is the continuation vehicle. It’s a gray area, but if you can make the argument that you’re providing only operational and administrative services, no management fees, no carry, the SEC is less likely to view it as a venture exemption violation. The third is admitting a new LP into the fund. Essentially, you bring in a new LP who contributes capital in exchange for an asset allocation, and that capital gets distributed to your existing LPs. But to do it properly, you have to create an entity, because contribution and distribution alone won’t generate realized gains. You have to sell, then re-contribute to the fund. These are the most obvious structures that come to mind, but I’m sure there are others out there that I haven’t thought of yet.
“I’d call it three pillars of generating liquidity in venture. What we did at Primary is one of them.”
When to Bring in a Venture CFO
Venture5: You’ve joined multiple firms as a finance leader. When should a GP actually pull the trigger on a full-time hire?
Mike Witkowski: It depends. If you’re a GP who raises half a billion in your first fund, you absolutely need to think about this soon after closing. For everyone else, I’d say fund three, once you’re around $250M in AUM and you have meaningful complexity in both your LP base and your portfolio. And it doesn’t have to be a CFO out of the gate. What matters most is finding someone willing to learn and willing to build their own network in the ecosystem. The GP’s job is to respect that this person is learning alongside them and to not punish reversible mistakes. That patience is what allows a finance professional to grow with the firm.
Venture5: If you could give a GP one question to ask any CFO candidate, what would it be?
Mike Witkowski: Two angles, one question: what’s your attitude toward learning and growth, and how do you see the relationship between the CFO and the GP? CFO is not an island. CFO is not somebody who lives in a separate office and does whatever they want. The CFO’s job is to make the GP’s job easier, to make GPs more efficient, and to deliver value through operational efficiency and excellence. If a candidate doesn’t understand that, the technical skills don’t matter.
“CFO is not an island. CFO is not somebody who lives in a separate office and does whatever they want. CFO is to make GPs more efficient.”
A Note on AI
Venture5: Last one. Everyone’s thinking about AI right now. How are you using it?
Mike Witkowski: I have to admit it stresses me out. I feel like I’m always behind given how quickly things change. But having said that, I use AI a lot to help with data extraction, data structuring, and report building. That saves me, I don’t know, call it a day a week. I thought I would eventually need someone to help me with that, junior accountants, what have you, to help with the grunt work. I don’t think I’ll have that need anymore. As I’m getting more proficient, I don’t think I’ll need to make that hire in 12 months.
“I thought I would need someone to help me with the grunt work. I don’t think I’ll have that need anymore.”
ABOUT MIKE WITKOWSKI
Mike Witkowski is CFO at ENIAC Ventures, an early-stage firm backing founders from day one. Before ENIAC, he served as CFO at Primary Venture Partners, where he led the firm’s financial operations and structured one of the more innovative secondary liquidity transactions in recent venture history. Mike brings a practitioner’s lens to fund finance, focused on tax efficiency, operational structure, and building finance functions that scale with the firm.
