Secondaries in US startups are aligning with overall VC dealmaking priorities, according to a new PitchBook research report, as secondary dollars concentrate on trendy companies and sectors like AI.
While limited and general partners have seized on secondaries as one solution for venture’s big liquidity problem, the reality is that all of 2024’s secondary transactions added up to a small fraction of the US venture market.
In other words: The concentration of secondary deals into a small group of hot startups suggests limits to how much the market can ultimately grow, despite the ongoing hope these transactions can be a meaningful alternative to traditional startup exits.
The report pegs the size of the US secondary market at $41.8 billion to $59.9 billion. Tender offers from just seven unicorns totaled $16.7 billion last year. Still, VC secondaries overall totaled a scant 2% of the more than $2.9 trillion valuation of all unicorns.
The maturing venture secondaries space has become “like an echo of the primary venture market,” including in terms of deal count, deal value and dry powder, said Emily Zheng, a senior venture capital analyst at PitchBook.
In terms of dry powder, though, secondaries have outpaced the broader venture market’s stockpile. Dry powder earmarked for secondaries hit $7.2 billion in June 2024, more than double 2023’s total of $3.9 billion.
Yet, that amount represented just 2.3% of dry powder in traditional VC funds, which declined slightly last year.
“Secondaries have room to grow, which is very promising, and they have made a lot of progress, but they are capped by how much they can actually grow, because it’s limited by the potential of the top companies that are really garnering the most interest in the secondaries market,” Zheng said.
Secondary transactions had a median premium of 8.9% in Q4 2024, a significant change from 2023’s median discount of 47.7%, which stemmed from the dearth of exits and high interest rates, according to the report. Lower rates that drive up oversubscribed venture rounds also drive up secondaries interest.
With discounts narrowing, potential buyers have been wary of backing startups they view as less safe bets, according to Zheng.
Featured image by Jenna O’Malley/PitchBook News
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