The venture capital secondaries market is far bigger than most estimates suggest, according to research by a market pioneer.
There was around $105 billion of VC secondaries transaction volume in 2021, split roughly 60/40 between LP interests and direct secondaries, VC secondaries buyer Industry Ventures concluded in How Big is the Secondary Market for Venture Capital?
This represents a 72 percent increase on 2020 and is 40 percent up on the $75 billion seen in the previous record year of 2019.
This growth derives from a rapidly expanding primary market – VC funds raised $1.7 trillion in the last 10 years compared with $406 billion in the 10 years prior to that.
Much of this was raised by growth equity and late-stage VC funds to invest in companies becoming larger and larger under private ownership. This has coincided with a raft of non-traditional VC investors entering the market.
“Half the early-stage venture funds have a growth fund now, all the growth funds grew pretty large; a lot of hedge funds came in and raised private 10-year growth funds; mutual funds came in and raised private equity-type structures…” said founder and CEO Hans Swildens. “This whole unicorn phenomenon, and growth funds funding that phenomenon, is a lot bigger than we think.”
Industry Ventures expects VC secondaries deal volume to hit $130 billion in 2023, driven by further growth in the primary market as well as the increasing acceptance of GP-led transactions as a means of getting liquidity for LPs.
As is the case in the PE secondaries market, there is a gap in pricing expectations between buyers and sellers of VC stakes. The decline of tech stocks and the resultant impact on private valuations is likely to compel sellers to cut their losses via the secondaries market.
“Some decided to sell, some made adjustments to prevent [a sale] from happening during the quarter. But they still have to sell. It’s a matter of time,” said Swildens.
The VC secondaries market is particularly difficult to size given that most dealflow is not intermediated. Secondaries advisers estimated the size of the entire secondaries market at around $130 billion in 2021.
The buyer universe is also very splintered, with certain types of institution targeting specific parts of the VC secondaries market. Industry Ventures is one of the few groups that does all types of deal.
Industry Ventures is currently investing its $850 million Fund IX, which counts Los Angeles Water & Power Employees Retirement Plan, New Hampshire Retirement System and New Mexico Educational Retirement Board among its investors, according to Secondaries Investor data.