Investors in venture funds, or limited partners, usually have to wait until a company goes public or is acquired in order to see tangible returns, a process that is taking longer
In some cases, he says, StepStone has even acquired startup shares on the secondary market at prices 80% below their most recent funding rounds. For secondary investors like Borton, these fire sale prices can present an opportunity to get into the hottest funds and startups at a time when relatively few new deals are being done."That's like catnip for us," Borton said.
And the market doesn't seem likely to slow down any time soon. Secondary investors came into 2023 sitting on $131 billion in dry powder, according to a survey from investment advisory firm Evercore. That represents a 25% increase from a year earlier. The same survey found that secondary investors plan to raise another $94 billion this year, also a sizable increase from last year's expectations around the same time.
"There's a lot of room to be very creative with secondaries, especially in times like now where liquidity seems a long way off," said Boaz Dinte, managing partner at venture fund Qumra Capital, which in 2019 completed Israel's first ever GP-led secondary transaction. In that transaction Qumra sold about 30% of every company in their fund, what's known as a strip sale, allowing them to return capital to investors while still capturing future upside.