Venture - Secondaries
I work at an early-stage VC firm - we have a position in an earlier fund that we are potentially interested in exiting (portco acquired and we now have shares of acquiring co). It seems like everyone I talk to has a different path for pursuing secondary sales. It's a small enough position (<$10M) that we wouldn't run a formal process but also don't know what others do with smaller positions. Best practices and what other firms typically do would be appreciated.
Ah, the world of secondaries, where the liquidity of private investments becomes a game of strategy and networking. Based on the most helpful WSO content, here's a swing at your query:
Direct Approach: Some firms prefer to directly reach out to their network of other VC firms, institutional investors, or even family offices that might be interested in such a position. This can be a more discreet and targeted approach, ensuring that the opportunity is presented to potentially interested parties without broadcasting widely.
Secondary Market Advisors/Brokers: There are advisors and brokers who specialize in secondary transactions. They can provide valuable services in terms of pricing, finding buyers, and handling the transaction process. Given the size of your position, this might be a cost-effective way to access a broader range of potential buyers without a formal auction process.
Online Secondary Platforms: There are online platforms that facilitate secondary transactions for smaller stakes. These can be efficient in terms of cost and time, especially for positions under $10M.
Limited Partners (LPs): Sometimes, other LPs within the fund might be interested in increasing their stake, so it's worth checking internally if there's any interest.
Structured Secondary Transactions: For more complex situations or to achieve specific objectives, structured secondary transactions like tender offers or continuation vehicles can be considered, although these might be more suitable for larger positions.
Remember, each path has its own set of trade-offs in terms of speed, discretion, price, and effort required. It's often a balancing act between getting the best price and finding a buyer in a reasonable timeframe. Keep in mind that the secondary market is nuanced, and the best path depends on the specifics of your position and your firm's objectives.
And don't forget, while you're navigating these waters, keep an eye out for the latest trends, such as single-asset secondaries and continuation funds, which have been gaining traction in the secondary market. They might not be the traditional route for a position of your size, but they're part of the evolving landscape in secondaries.
Sources: Q&A: CB -> CIB -> Distressed, Learning recs for secondaries, Shorting Stocks: My Research Process & 7 Rules I Follow, Q&A: Physical Oil Trading, Ask Me Any Question You Have About Prime Brokerage
Have worked on a few of these types of transactions on the sell side at a PCA group. Typically for directs pricing is going to be roughly in line with LP venture pricing – somewhere between 70s to 80s today on the headline discount
Typically valued somewhere off comps and last round pricing. Last round in particular will be scrutinized especially if done around 2021. Can see pricing improve if the GP is willing to facilitate some diligence / advise on exit returns
In terms of buyers, these can vary greatly. Typical institutional LPs may have some appetite but allocations here are still growing and somewhat bureaucratic. Family offices like these deals since they’re typically more nimble
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