Secondary discounts for startups have almost recovered

Huge discounts on startup secondaries are vanishing, a sign that demand for these minority stakes is finally catching up to supply.

Relative to their last funding round, prices of direct secondaries have gone from trading at an average discount of 50% in early 2023 to 12% in September of this year, according to data from secondaries marketplace Zanbato.

Aging VC funds and employees alike have spent much of the last two years selling secondaries in startups at steep discounts after the VC market took a downward turn.

By early 2023, companies were, on average, trading at 50% below their last private round valuation. Secondary investors like StepStone and Industry Ventures jumped on the opportunity, raising new funds to buy up secondary shares at major discounts.

Venture outfits including Lightspeed and Accel reportedly applied to the SEC this year as registered investment advisers, so that they could deploy more than 20% of their funds on secondary investments.

Now, the market appears to be rebalancing toward an equilibrium that was last seen in mid-2022, suggesting that nearly enough new buyers have come to the market to meet sellers’ demand.

At the same time, pre-IPO companies are trading at significant premiums as high-growth companies run tender offers and investors anticipate the reopening of the IPO window.

Both DataBricks and SpaceX are reportedly considering running tender offers at valuation premiums from their last round, to allow investors to buy up shares from current and former employees.

The industry’s fastest-growing startups have seen a remarkable valuation ascent, boosted by strong performance in the public markets.

Take Stripe: The payments giant swallowed a nearly 50% cut to its valuation in March 2023, at the bottom of the market. In the 18 months since, Stripe’s price in the secondaries market has rebounded to an estimated private valuation of $99.8 billion, bringing it above its $95 billion valuation set in 2021, according to data from Caplight, a secondaries platform provider.

The secondary price is above Stripe’s ongoing tender offer for employees, which reportedly gives Stripe at a $70 billion valuation.