State of the Secondaries Market, August 2024
The venture capital secondaries market is experiencing unprecedented growth, addressing the pressing need for liquidity and offering robust investment opportunities. In 2023, secondary funds raised a record $93.8 billion, a staggering 159% increase from the previous year–and that trend appears to be continuing into 2024. This surge highlights the growing importance and attractiveness of secondaries in the venture capital landscape. To provide deeper insights into this trend, we teamed up with our friends at Live Data to leverage their extensive secondaries data.
Liquidity Needs in Venture Capital
One of the primary drivers behind the rise of the secondaries market is the liquidity crunch in the venture capital industry. With $3.2 trillion in unrealized value tied up in approximately 28,000 private companies, many of which are over four years old, the need for liquidity solutions has never been more critical. As shown in the graphic below, employee tenure at these companies has increased by 10 months on average since 2019, leading to more vested stock options and consequently, more wealth being illiquid.
This backlog is four times greater than what it was during the global financial crisis, creating significant pressure on funds to return capital to investors and keep the venture capital ecosystem functioning.
Secondaries provide an effective solution to this liquidity issue. They allow GPs and LPs to sell their venture capital holdings, generating much-needed liquidity. Unlike other asset classes, secondaries have consistently delivered strong returns with less volatility. Even the lowest-performing quartiles of secondary funds manage to achieve positive returns, making them an attractive option for investors looking for stable, reliable performance.
Growing Investor Interest
Investor interest in secondary deals is at an all-time high. As of H1’24, many LPs believe that secondaries are the best opportunity in venture capital. Sydecar’s data reinforces this trend; the average number of LPs per secondary deal on the Sydecar platform increased by over 30% from 2023 to 2024, reflecting growing investor engagement.
The strong performance of secondary funds and their ability to provide liquidity quickly has made them particularly appealing. As exit markets have remained sluggish, secondary transactions give investors an opportunity to rebalance their portfolios and access cash. The shorter payback period of these investments, due to the maturity of the assets, adds to their attractiveness.
Increased Employee Departures
Adding to the rising investor interest, the market is also seeing a significant number of employee departures from top pre-IPO companies. The graphic below indicates that companies like Stripe, Verkada, and Fanatics are experiencing the highest turnover, with hundreds of employees leaving and facing decisions about their vested stock options.
These data points suggest that many employees are seeking liquidity for their vested options, further fueling the supply and demand for secondary transactions. The departure of employees from these high-growth startups underscores the growing need for secondary buyers in the VC market.
Market Dynamics and Innovation
The secondary market, while still small relative to the broader venture capital market, is expanding rapidly. Secondary transactions currently provide about $120 billion in liquidity annually, a fraction compared to the over $20 trillion in assets under management globally. However, the potential for growth is significant. As illustrated in the graphic below, Sydecar’s data shows that the average amount raised in secondary deals has nearly doubled, from $969K to $1.8M per deal year-over-year, showcasing robust secondary market growth.
Additionally, the number of secondary deals closed on Sydecar’s platform has steadily increased over the past 18 months, further demonstrating the market's rapid expansion and growing investor participation.
Increased Seller Motivation
There has been an increase in sellers who have a genuine need for liquidity or portfolio rebalancing. These sellers are more willing to transact even if they do not achieve their ideal price, further fueling the supply of secondary deals. This trend is expected to continue as more venture capital firms seek ways to rebalance their portfolios more actively.
The Future of Secondaries
The future looks bright for the secondaries market. As venture capital's need for liquidity continues to grow, the secondary market is well-positioned to provide the necessary solutions. The undercapitalization of the market, with about $200 billion of dry powder, suggests significant room for growth. Innovations in deal structures and the increasing participation of new entrants will likely drive the market's expansion.
Sydecar supports secondary transactions by providing a seamless platform to pool capital and purchase secondary shares. Our proprietary infrastructure simplifies complex transactions, handling automated banking, compliance, contracts, and reporting so you can focus on deal-making. Learn more on our landing page:
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