Washington Mutual is looking to sell its interests in 10 venture capital funds as part of a plan by the embattled Seattle bank to raise cash. Some of Seattle's most prominent venture firms -- including Arch Venture Partners, Madrona Venture Group and Maveron -- are among the funds supported by WaMu, according to a bankruptcy court filing released Friday. (Read the filing here: PDF, 17 pages.)

"(Washington Mutual) and its advisors submit that there is value in the Investments and that liquidating the Investments ... will generate value for WMI's estate and creditors," the company wrote.

WaMu had committed $36.5 million to the funds -- the largest and most recent being a $10 million obligation to San Francisco-based Financial Technology Ventures III. To date, it had contributed $27.8 million to the 10 funds.

WaMu was a small investor in Madrona, Arch, Maveron and others, with some of the capital commitments occurring more than nine years ago. Madrona's Matt McIlwain and Greg Gottesman said WaMu's decision to sell the portfolio would have little impact on the firm, possibly bringing in a new limited partner that would manage the bank's commitments.

It is not uncommon for financial institutions -- especially those like WaMu that are under enormous financial stress -- to liquidate holdings in high-risk venture capital funds. In fact, an active secondary market has arisen where financial institutions attempt to gobble up the holdings at a discount.

Because of the weak economy there's no shortage of secondary buyers right now, said Gotttesman.

Like the public markets, many venture funds have lost value in recent months as VCs reset the value on startup companies in their portfolios. Because of that, a secondary buyer could potentially buy assets relatively cheap compared to prices just six or 12 months ago.

It is still a risky proposition since there is no guarantee that the startup companies in each of the venture firm's portfolio will survive the downturn. The secondary buyers also must consider the amount of capital commitments still outstanding -- in this case about $9 million -- and whether they can capture that much value from the rest of the portfolio. 

The court filing did not specify the value of the holdings in each of the venture funds, though it did provide details on the arrangements it has with some of the funds. For example, WaMu said it has received capital calls from FT and Arch Venture Partners in the past two months.

WaMu recently missed a $700,000 capital call from FT and now the bank is listed as a "defaulting limited partner." As a result, it must pay 18 percent on the amount of the capital call. If it continues to miss payments, WaMu would forfeit 25 percent of the contributed capital on Dec. 6 and 50 percent on Feb. 6.

The venture capital holdings are just one small piece in WaMu's portfolio. But the decision to sell indicates that the company -- now owned by JPMorgan Chase -- is shedding non-essential components of the business.  

A hat tip to the PSBJ's Kirsten Grind who uncovered the filing, and has been all over the WaMu story.