Venture capital secondaries

Key takeaways

• Venture capital secondaries involve buying and selling existing stakes in VC funds or startups.
• Unlike primary VC investments, secondaries do not involve injecting new capital into early-stage companies.
• Sellers can include LPs, GPs, founders or employees seeking liquidity.
• Buyers range from institutional secondary funds to retail-focused feeder platforms.
• Common transaction types include LP-led, direct and GP-led secondaries.
• VC secondaries are growing due to longer exit timelines, delayed IPO markets and the rising need for liquidity.

What are venture capital secondaries?

Venture capital secondaries refer to the purchase and sale of existing ownership interests in venture capital funds or in the startups those funds back. Unlike primary investments, which involve investing new capital directly into early-stage companies, secondaries revolve around transferring pre-existing positions from one investor to another.

These transactions help unlock liquidity in a traditionally long-term and illiquid asset class. For example, a limited partner in a VC fund might sell their fund interest mid-cycle to reallocate capital or a startup founder might sell a portion of their equity after a Series C round to diversify personal wealth.

Sellers in VC secondaries can include:

• Limited partners exiting fund commitments
• General partners seeking to restructure or extend the life of the fund they manage
• Founders or early employees monetizing private company shares

Buyers can include:

• Dedicated secondary funds focused on venture portfolios
• Institutional investors seeking mature startup exposure
• Feeder platforms offering curated access for individuals

VC secondaries can potentially offer a route into venture-backed growth companies with greater visibility into performance and risks, especially in later-stage or pre-exit scenarios.

Types of VC secondary transactions

Venture capital secondaries span several structures, each with distinct motivations and dynamics:

1. LP-led secondaries

In this most traditional form, an existing LP sells their interest in a VC fund to another investor. The buyer takes over future distributions and obligations. These deals often occur mid-life when portfolios are partially built, offering clearer risk-return profiles than at fund inception.

2. Direct secondaries

In a direct secondary, shares in a specific startup are sold. Founders, early employees or angel investors may seek partial liquidity by selling shares to an external buyer, often before an IPO or acquisition.

3. GP-led secondaries

Here, the fund manager initiates a secondary process, commonly through a tender offer or a continuation fund. This allows GPs to extend exposure to high-potential portfolio companies, offer liquidity to existing LPs or realign fund terms with investor interests.

Each structure offers varying degrees of control, information rights and pricing dynamics, with GP-led deals becoming increasingly common in venture portfolios that are maturing but not yet exited.

Why venture capital secondaries are gaining momentum

Although venture capital secondaries account for just over one-tenth of total private capital secondary volume pricing has rebounded sharply in 2024 and investor appetite is strengthening¹, supported by several market forces:

• Longer fund life cycles: With IPO markets slowing and M&A exits delayed, investors are holding positions longer than expected.
• Liquidity needs: LPs may need to rebalance portfolios or respond to macroeconomic shifts, while founders and early employees often seek personal liquidity after years of paper gains. (However, liquidity is not guaranteed.)
• Lower entry risk: Secondaries allow investors to enter positions in later-stage companies with greater product-market fit, known teams and defined exit paths.
• Fund restructurings: GPs increasingly use secondary transactions to extend their fund’s life, manage concentrated positions or provide selective liquidity.

These dynamics have made venture secondaries an increasingly strategic tool for both liquidity management and growth investing.

Venture secondaries vs. private equity secondaries

While primary VC and PE both support private markets investing, their secondary markets differ in key ways:

• Company life cycles: VC-backed startups often grow and fail faster than PE-backed businesses, resulting in more dynamic pricing.²
• Valuation volatility: Venture valuations can fluctuate significantly based on funding rounds or product success, making secondaries riskier but potentially more rewarding.³
• Deal variability: In the VC space, secondaries hinge more on company-specific milestones like user growth or securing a follow-on funding round, whereas PE secondaries often reflect cash flow, EBITDA and more stable fundamentals.

As a result, pricing and structuring in VC secondaries require sharper insight into the future capital needs of the startup/s in question, as well as the broader dynamics that are unique to early-stage companies, such as stage of development, product-market fit, customer growth and retention and cash burn rates and runways.

Secondary VC fund platforms

Dedicated venture secondary funds can play an important role in this market. These funds specialise in valuing illiquid assets and negotiating discounts to reflect risk, time-to-exit and information asymmetry.

Alongside them many platforms are creating curated access to venture secondaries for a broader audience. These platforms allow qualified investors to buy into portfolios of secondary shares, often in high-growth companies or well-known VC funds, at lower minimums and with institutional-grade due diligence.

Conclusion

Venture capital secondaries may provide an important liquidity and access mechanism in an otherwise illiquid asset class. Whether through LP interests, direct company shares or GP-led restructurings, they allow both investors and startup stakeholders to rebalance, exit or enter positions with more information and reduced blind risk than investing on a primary basis.

For investors, they may offer a unique combination of diversification, later-stage entry and liquidity⁴, making them an increasingly popular route to building venture exposure.