TLDR:
- Venture capital investors are increasingly demanding partial exits from late-stage startups to clock returns in a technology market slump.
- Sizeable investment rounds of $50 million in the past year included a significant secondary component providing liquidity for existing investors.
Article Summary:
Venture capital investors are seeking partial exits from late-stage startups to generate returns in a challenging technology market. This has led to a rise in secondary deals, with significant investment rounds including a secondary component for existing investors to gain liquidity. Founders of mid-scale startups are reporting that existing investors are demanding exits even at reduced valuations. Industry experts note that several deals are being structured to provide exits for early backers, with a growing interest in secondary stakes in companies on the path to IPO. In 2023, venture investments saw a drastic dip, pushing early backers to seek exits and deliver returns to their limited partners.
Secondary transactions in 2024 include investments from private equity firms like TPG, Peak XV Partners, and Tiger Global in companies like Shadowfax, Meesho, and Sugar Cosmetics. These large deals often include a significant secondary component. Sovereign wealth funds, large family offices, and late-stage investors are acquiring stake in growth-stage startups, contributing to the rise of secondary transactions in the market.
In the context of companies aiming for IPO, long-term investors are acquiring stakes from venture capital firms with shorter fund lifespans. Early investors are finding opportunities to exit as larger investors seek to join market-leading companies’ cap tables. Price adjustments in the market have fueled demand for secondaries, creating more confidence among investors in the long-term value potential of these companies.
