Today on our mind: Startup secondaries, inspired by this post below by Industry Ventures The secondary market for VC-backed startups is experiencing a significant revival. Older VC funds are driving this change, fueled by new, larger secondary funds and a more positive private market sentiment. Sellers are now more realistic about pricing, leading to a narrowing bid-ask spread and increased deal activity. A prime example is Sequoia Capital's recent offer to buy $861 million worth of Stripe shares from investors in earlier Sequoia funds, reflecting the pressure from LPs for liquidity. Sequoia’s willingness to pay a $70 billion valuation—a notable increase from Stripe’s last round valuation of $50 billion—highlights the growing confidence in the market. The median discount on startup valuations has improved from 46% in December 2023 to 31% by June 2024, signaling market stabilization. Large players like Industry Ventures and StepStone Group are ramping up their secondary strategies. Industry Ventures raised $1.45 billion for its 10th secondaries fund, plus an additional $900 million for a hybrid fund. StepStone closed a $3.3 billion fund for VC secondaries. Even Lightspeed is considering becoming a registered investment adviser to deploy more capital into secondaries. The market dynamics are further influenced by aging VC funds seeking liquidity. For example, Isomer Capital, which launched a £100 million secondaries fund in April, is buying more pieces of venture funds and direct secondaries from high-net-worth individuals. This shift provides a crucial liquidity pathway for early investors and employees, reassuring founders amid challenging exit conditions. Moreover, the overall VC market generated $49 billion in exit value in the first half of 2024, similar to 2022 but far below the levels seen from 2019 to 2021. As companies that raised funding in 2021 or 2022 come back to market and seek new primary financings, it immediately creates a clearing price for secondaries trades. As the market matures, there’s a notable increase in both LP-led and GP-led deals, reflecting a more sophisticated and specialized secondary market. This evolution is crucial for ensuring the long-term sustainability of the private capital ecosystem, especially as public market exits remain uncertain. #VentureCapital #SecondaryMarket #StartupInvesting #Liquidity #VCFunds
"Several buyers of venture-backed secondaries have closed new funds recently. Industry Ventures raised $1.45 billion in September for its 10th secondaries fund, plus an additional $900 million in July for its hybrid fund, 20% of which it will use to purchase LP stakes in venture funds."