The venture capital secondaries market has been having its moment. As liquidity remained tight and private market valuations continued to reset, early investors, LPs, and even founders were looking for ways to offload positions—often at significant discounts. But are these markdowns simply a reflection of market distress, or do they present a compelling entry point for savvy investors willing to take the long view?
VC secondary transactions occur when shareholders of a pre-IPO, venture-backed company sell their shares to a third party, rather than the company issuing new shares. Unlike primary transactions, where companies raise capital by selling new equity, secondaries provide liquidity to early investors, employees, and other stakeholders.
Written by: Shirley Mabasa
The Evolving Role of Secondaries
In private equity (PE), secondaries have experienced explosive growth. Assets under management (AUM) in the PE secondary market have expanded at an annual rate of 16% from 2013 through Q2 2023—outpacing the broader market’s growth rate of 14% over the comparable period.
Figure 1: Global AUM, By Asset Type (Dollars in Trillion)
Source: Common Fund
The rapid growth of the secondaries market isn’t just a reaction to tighter liquidity conditions—it represents a structural shift in how LPs and GPs manage their portfolios. Investors are no longer limited to traditional fund cycles; secondaries now offer flexibility, optionality, and liquidity across strategies, geographies, and vintages.
LPs are increasingly using secondaries to rebalance portfolio exposure, securitise positions via structured portfolios traded on the bond market, and unlock liquidity without relying on unpredictable exit markets. Meanwhile, GPs are leveraging direct secondaries, continuation funds, and "strips" of portfolios to extend the runway for promising companies and return capital to investors, even in sluggish exit environments.
Secondaries have also become an important tool for raising cash at the firm level, whether for succession planning or expansion.
In the same way secondaries have successfully provided liquidity options for PE investors, can they also serve as a channel for VC stakeholders—such as limited partners (LPs) or founders—seeking partial liquidity before a fund’s maturity or an exit event?
The short answer is yes. The real question is whether VCs can successfully do so.
What drives the demand for VC Secondaries?
The demand for VC secondaries is driven by three key factors: liquidity constraints, the increasing pressure for higher returns, and declining valuations in the venture capital market.
1. Liquidity Constraints
Venture-backed companies are staying private longer, resulting in their times to IPO extending well past a decade. This has created a large backlog of potential unicorns. However, as these investments in venture capital remain locked up for extended periods, investors are increasingly turning their attention to secondary market opportunities to unlock liquidity.
Figure 2: Time to IPO for Venture-backed companies
Source: Industry Ventures
Longer times to IPO means additional funding rounds. These additional funding rounds typically add 1–3 years to the exit timeline, creating challenges for LPs in venture funds that are nearing the end of their time horizons. Many now find themselves in overextended funds, concentrated in a few potential unicorns that are still years from going public. According to Industry Ventures, this liquidity constraint has fuelled a surge in LP secondaries, which comprised ~40% of deals in their Industry Ventures Fund VIII, up from ~20% in Fund VI, signalling growing LP interest in secondaries.
2. Returns
At the same time, the desire for improved performance is pushing investors to look for avenues that offer higher returns through discounted entry points. VC returns have lagged public market benchmarks in recent years. This relative underperformance has prompted LPs to put even more pressure on VCs. Private Equity secondaries have been very successful on this front. As the figure below illustrates, secondaries have consistently generated strong returns - median returns for secondary funds have consistently outperformed those of PE, VC, real estate, and natural resources. Notably, even the fourth quartile of secondaries funds has historically remained in positive territory, a distinction that no other alternative asset class can claim.
Figure 2: Net IRR dispersion, by asset class (vintage years 2000 – 19, as of Q2 2023)
Source: Bain & Co
Additionally, these secondary strategies have delivered returns with a lower level of volatility. This downside protection stems from the fact that secondary transactions typically occur at a discount to NAV, meaning investors can enter positions with built-in risk mitigation and upside potential.
3. Valuations
The easing of valuations in the VC space presents an attractive opportunity to acquire stakes in high-growth companies at more favourable prices. As highlighted in this article, parallels can be drawn between private equity’s post-2008 struggles and the current challenges in the VC market—which could fuel greater adoption of secondary opportunities.
Figure 4: Historical TTM Price-to-sales VC Valuations
Source: Wellington Management
As can be seen above, after peaking at 12.47x price/sales median multiples in 2020–2021, valuations of VC-backed IPOs have dropped to more sustainable levels, with the 2022–YTD median at 5.20x. This isn’t just a return to earth—it’s a reset to historical norms, reminiscent of 2014–2019 levels. For many investors, however, this valuation reset is far from ideal. VCs and LPs who backed companies at inflated valuations during the boom years are now facing paper losses and a far longer wait for liquidity, as companies are reluctant to go public at reduced valuations, while acquirers are hesitant to pay a premium.
In this environment, secondaries are emerging as a critical release valve, offering investors an opportunity to offload positions, free up capital, and rebalance portfolios amid shrinking exit opportunities. While discounts may be steep, secondaries could provide an alternative to waiting indefinitely for liquidity in a venture market still recalibrating.
The VC Secondaries Opportunity
Venture secondaries appear primed for growth. Although they remain just a sliver of the buyout secondaries market, thinner volume has driven deeper discounts (around 68% of NAV in 2023, versus 91% for buyouts). Wellington’s Private Investment Outlook suggests that ongoing portfolio rebalancing and rising liquidity needs will entice more managers into what has been a niche space. Over time, this could boost transaction volume and enhance efficiency.
Figure 5: VC vs Buyout Secondary Market Penetration Rates
Source: Wellington Management
As shown in the figure above, the VC secondaries market remains significantly underdeveloped, accounting for less than 20% of the overall secondary market. Despite venture capital AUM approaching $2.5 trillion, its secondary market penetration continues to lag far behind that of buyouts, highlighting a substantial opportunity for growth and increased market efficiency.
Buyout secondaries currently see an estimated 2% penetration rate, translating to $72 billion in annual transactions, venture secondaries have lagged behind—capturing only $7 billion in annual volume. However, if venture secondaries were to reach a similar 2% penetration rate, the market opportunity could exceed $50 billion, signalling significant untapped potential.
The relatively low trading volume in venture secondaries has resulted in larger discounts, with transactions priced at just 68% of NAV in 2023, compared to 91% for buyout secondaries. This pricing inefficiency, combined with liquidity constraints and portfolio rebalancing pressures, is likely to drive greater participation from managers in the coming years.
Prior industry estimates pegged the total addressable market for VC secondaries at roughly $140 billion globally in 2023.
Figure 6: Global Total Addressable Market for VC secondary Transactions
Source: Industry Ventures
As seen above, the venture secondary market has expanded rapidly over the past decade. This surge reflects growing demand for liquidity among LPs and early investors, as well as the increasing role of direct secondary transactions—where founders, employees, and early investors sell their shares in pre-IPO companies.
Historically, LP interests dominated the secondary market, but recent years have seen a significant rise in direct secondaries, accounting for $53 billion of the total in 2023. The acceleration of secondaries highlights how extended IPO timelines and liquidity constraints are reshaping venture capital, making secondary transactions an essential tool for investors navigating today’s private markets.
Recent trends also signal robust momentum. The number of firms specializing in VC secondaries has nearly doubled—from 12 in July 2024 to 26 in November 2024—demonstrating the rising interest in this asset class. As portfolio rebalancing intensifies and liquidity needs increase, transaction volumes are expected to climb, enhancing market efficiency.
That said, the road to unlocking value for VC secondaries will be significantly more challenging than it is for PE investors. VC secondaries face unique challenges compared to private equity. The most notable challenge is that VC GPs are often reluctant to sell their top-performing assets, instead offloading mediocre performers while holding onto potential “fund returners.” VC funds typically rely on just one or two breakout winners to deliver the bulk of returns, making GPs less incentivised to transact in secondaries.
GP-led continuation funds offer a viable solution to this issue. By allowing GPs to monetize portions of their portfolios without fully divesting top-performing assets, these structures align the interests of both GPs and secondary buyers, enabling liquidity without sacrificing long-term upside.
Table 1: Top 10 VC Secondary focused firms (LPs and GPs)
Firm | Dedicated Secondaries Capital |
Lexington Partners | $26.0B |
Hamilton Lane | $5.6B |
StepStone Group | $3.3B |
Industry Ventures | $2.49B |
Lightspeed | $2.36B |
Pinegrove | $1.0B |
NewView Capital | $488M |
TrueBridge | $230M |
TempoCap | $135M |
SecondQuarter | A$134M (~$85–90M) * |
Source: Nodem Capital
It is also worth noting that the VC secondaries buyer market is remarkably concentrated, with a few dominant firms controlling the lion’s share of capital. This concentrated structure highlights how a select group of specialists drives liquidity and shapes pricing dynamics within the VC secondaries space.
As highlighted earlier, the number of VC secondary focused firms doubled in 2024. This increasing competition will be instrumental in driving down discounts and lead to more favourable pricing dynamics, easing the concentrated influence of the dominant firms.
Despite the challenges highlighted above, we believe that over the longer term, VC secondaries are poised to democratise access to high-growth ventures and unlock significant value in private markets. The combination of liquidity constraints, return lagging valuations recalibrating, the growing secondaries market offers a way to capitalise on dislocation, acquire assets at a discount, and navigate a market that is looking to regain its footing. LP pressures on VCs are likely to mount if the promise of improved IPO markets and exits do not materialise, making the case for VC secondaries even more compelling.
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