Secondaries

Secondaries are transactions where investors sell their shares or stakes in a venture capital fund or in an individual start-ups to other investors.

In a primary investment, a venture capital firm funds a start-up in return for equity or ownership. The investment is made directly into the company. Conversely, secondary investments occur when existing shareholders sell their ownership stakes to new investors.

Many reasons can explain secondary transactions. The most important one is perhaps liquidity. Indeed, secondaries provide liquidity to investors who may want to exit their positions before the end of a fund’s lifecycle or before a company’s IPO or acquisition. Another important reason is portfolio rebalancing: secondaries allow investors to adjust their portfolio allocation by selling certain positions.

The pricing of secondary transactions can be complex and is often negotiated between buyers and sellers. Valuations depend on the performance and prospects of the underlying investments, and may be influenced by market conditions and the specific terms of the secondary sale.

On the venture capital secondary market, sellers typically include venture capital firms, limited partners, founders and executives, and current or former employees.