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Illustration: Sarah Grillo/Axios

Venture capital firms, formed to invest in startups, are increasingly becoming sponsors of SPACs, blank-check companies that bring later-stage businesses into the public markets. It's significant strategy creep, but so far there hasn't been much opposition from venture capital fund investors, known as limited partners.

Be smart: SPACs are similar to VC in spirit and skills, which is how firms are selling it to their own investors.

The big picture: More than a dozen VC firms have formed SPACs, with many more in the pipeline.

  • Among them are Khosla Ventures, FirstMark Capital, Highland Capital Partners, Dragoneer, Tribe Capital, Lerer Hippeau, Greycroft, Foundry Group, Ribbit Capital and Lux Capital.

What they’re saying: “This is a growth investment for the fund, it happens to be done in a different way,” says Lux Capital managing partner Peter Hebert. “It’s just a financing product in our view.”

Between the lines: Limited partners seem mostly at ease.

  • “This is just another tool in their toolbox,” explains an investor whose portfolio includes three VC firms that have formed SPACs.
  • "They're able to back founders from the seed stage to the public markets now, as efficiently as possible," another LP offers, referring to it as a "full-stack" approach.

Yes, but: LPs who invest exclusively in early-stage VC funds aren’t quite as jazzed, believing it reflects diverted focus. Or, as one tells Axios: “None of my early stage funds better bring that noise!"

Line of demarcation: Limited partner sentiment is impacted, at least in part, by whether they get to participate (i.e. aligned interests).

  • In some cases, the VC firm uses fund capital, meaning that gains or losses are shared with limited partners.
  • In some cases, such as Thayer Ventures, limited partners are offered co-investment opportunities in the SPAC.
  • But, in some cases, the SPAC is either separate from fund LPs, or even a side hustle by individual partners in a fund.

The bottom line: SPAC performance will ultimately dictate how long LPs stay aboard the train.

Go deeper

Reddit user behind GameStop saga releases opening statement ahead of hearing

Wall Street protesters. Photo: Tayfun Coskun/Anadolu Agency via Getty Images

Keith Patrick Gill, known on YouTube and Twitter as Roaring Kitty, released his opening statement ahead of testimony before the House Financial Services Committee on Wednesday about his role in the surge of GameStop's stock price.

The big picture: Gill will join the CEOs of Reddit, Robinhood, Citadel and Melvin Capital at Wednesday's hearing. The committee plans to "examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors," per a statement by Rep. Maxine Waters (D-Calif.), chair of the committee.

Updated 1 hour ago - Health

First North American Omicron cases identified in Canada

COVID-19 testing personnel at Toronto Pearson International Airport in September. Photo: Steve Russell/Toronto Star via Getty Images

The first two cases of the new Omicron variant have been detected in North America, the Canadian government announced Sunday evening.

Driving the news: The World Health Organization has named Omicron a "variant of concern," but cautioned earlier on Sunday that it is not yet clear whether it's more transmissible than other strains of COVID-19.

Former Defense Secretary Esper sues Pentagon over book

Former President Trump and former Defense Secretary Mark Esper at the White House in 2020. Photo: Mandel Ngan/AFP via Getty Images

Former Defense Secretary Mark Esper filed a lawsuit Sunday against the Defense Department, accusing the Pentagon of "censoring" his First Amendment rights by redacting parts of his upcoming book on the Trump administration.

The big picture: Esper, who served as defense secretary from July 2019 until he was fired by then-President Trump in November last year, alleges in the suit that "significant text" is "being improperly withheld from publication" of the manuscript "under the guise of classification."