Seems like direct VC secondaries space is still a very niche area. Who do you primarily buy shares from? Do you typically acquire shares directly through negotiations with sellers during an employee tender process? Have you ever bought shares from an online trading platform? What incentivizes the management company to provide you with access to information? Is it because they expect you to fund their future rounds? Does this happen simultaneously? Who are the key players in the market?

Employees and GPsConfused by this question... if we're doing the tender, then we will buy shares, if not, then no. Whoever is running the tender will buy them...Sometimes they don't give information haha. A lot of the time, it's for early investors and some high-up employees/former employees to cash out, so there's a lot of alignment typically because it's mutually beneficial.Industry Ventures, G Squared, and Pinegrove are probably the biggest/top players in this space. A lot of growth/multistage funds, like LSVP and NEA, will also do deals like this, but it's far from their main strategy.

Direct Secondary is not as niche as you think. All mega funds are tapping into this as well. Read Tomasz Tungz post on secondaries. 70% of the VC liqudity in 2024 came from secondaries, 25% from M&A, and 5% from IPO. Been doing direct VC secondaries + primary investing for the past two years, so hopefully this is helpful 1. primarily buying shares from founders, c-suite executives, or employees at large through a tender offer. Tender Offers are becoming VERY common in growth stage VC.

Oct 27, 2024

Direct VC secondaries

Seems like direct VC secondaries space is still a very niche area.

Who do you primarily buy shares from?
Do you typically acquire shares directly through negotiations with sellers during an employee tender process? Have you ever bought shares from an online trading platform?
What incentivizes the management company to provide you with access to information? Is it because they expect you to fund their future rounds? Does this happen simultaneously?
Who are the key players in the market? Do you mostly hire talent from VC or growth equity firms? Do you also hire people from PE firms with traditional PE secondary experience?
Are you competing with VC or growth equity firms to acquire secondary shares? This seems like a delicate situation if you are also an LP in their funds.

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WSO Monkey Bot

Based on the most helpful WSO content, here are the detailed answers to your questions about direct VC secondaries:

Who do you primarily buy shares from?
- Shares are typically bought from existing Limited Partners (LPs) in a fund, such as institutional investors like CALPERS or NYS Common.
Do you typically acquire shares directly through negotiations with sellers during an employee tender process? Have you ever bought shares from an online trading platform?
- Acquisitions are generally made through direct negotiations with sellers. The process involves evaluating the value of LP commitments, considering factors like capital call schedules and distributions. There is no mention of buying shares from online trading platforms in the provided context.
What incentivizes the management company to provide you with access to information? Is it because they expect you to fund their future rounds? Does this happen simultaneously?
- Management companies may provide access to information because they expect future funding rounds. This access allows for better evaluation and validation of investment scenarios, including base, upside, and downside scenarios.
Who are the key players in the market? Do you mostly hire talent from VC or growth equity firms? Do you also hire people from PE firms with traditional PE secondary experience?
- Key players in the market include firms like Blackstone and Goldman. Talent is hired from various backgrounds, including VC, growth equity, and traditional PE secondary experience.
Are you competing with VC or growth equity firms to acquire secondary shares? This seems like a delicate situation if you are also an LP in their funds.
- Yes, there is competition with VC or growth equity firms to acquire secondary shares. This can indeed be a delicate situation, especially if you are also an LP in their funds.

For more detailed insights, you can refer to the full discussion on Wall Street Oasis.

Sources: Differences between Co-invest and Secondaries?, Q&A: PE Secondaries Principal, Q&A: PE Secondaries Principal, Secondaries Comp / Culture in 2023, Troubled fundraising processes

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VP in PE - Other

The biggest buyers of secondary directs in the venture space are normal VC funds. They typically buy from former employees or current employees who need the cash. A tender offer isn't a secondary direct, it's a GP-led transaction. There are some secondaries funds like Industry Ventures, VCFA, True Bridge and Sweetwater that will do it as well but they are a small part of the market.

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Authored by: Certified Private Equity Professional - Vice PresidentCertified Private Equity Pro

Associate 1 in PE - LBOs

Most Helpful

Employees and GPs
Confused by this question... if we're doing the tender, then we will buy shares, if not, then no. Whoever is running the tender will buy them...
Sometimes they don't give information haha. A lot of the time, it's for early investors and some high-up employees/former employees to cash out, so there's a lot of alignment typically because it's mutually beneficial.
Industry Ventures, G Squared, and Pinegrove are probably the biggest/top players in this space. A lot of growth/multistage funds, like LSVP and NEA, will also do deals like this, but it's far from their main strategy. Also, some secondaries-focused investors like StepStone and Lexington compete here as well.
Sometimes existing VCs on their cap table will want to buy up secondary shares to build up their position, and sometimes competition will come from another external player.

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Authored by: Certified Private Equity Professional - 1st Year AssociateCertified Private Equity Pro

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