Private Equity Secondaries

Private Thoughts From My Desk…….#40   The secondary market is warming up.   That is the unambiguous message from the Campbell Lutyens 1H 2025 report. With $110 billion in volume during the first half alone, this market is now operating at a scale and speed few would have imagined even two years ago. But beyond the headline figures, what stood out to me most was the continued evolution of GP-led deals—specifically, the fact that over half of these transactions priced at or above par (See chart below).   Yes, you read that right. Par. In a secondary market.   This is not just a technical pricing detail. It is a signal that something fundamental is happening in private markets. GP-led secondaries are becoming the preferred path for some of the best-performing assets in private equity. Pricing at or above par is not just a win for GPs and existing LPs. it is a reflection of intense demand among buyers who are now competing for access to scarce, high-quality paper.   What’s driving this pricing strength? A few things stood out. First, the selection bias. GPs are not bringing just any asset to market. They are bringing trophy assets. Cash generative. Durable. Often tech-enabled or exposed to long-term secular tailwinds. That kind of quality commands a premium in today’s environment.   Second, the supply-demand balance has shifted. Dedicated GP-led vehicles now control more than $31 billion of dry powder. Traditional secondary funds continue to raise more capital and do more GP-led deals. Sponsors have pricing leverage they simply did not have before.   And it’s not just single-asset deals that are seeing the love. Multi-asset continuation vehicles—long considered a harder sell due to structural complexity—are also seeing meaningful momentum. In fact, 44% of MACVs priced at or above par, a staggering jump from just 28% in 2024. This tells me the market is heating up. This is a trend. The presence of evergreen vehicles and more specialized capital has added further depth to the buyer pool. The result is a more liquid, more competitive, and more pricing-efficient market.   For GPs, the message is clear. The secondary market is no longer just a tool for liquidity. It is now a strategic extension of fund management. And for LPs, pricing at or above par is a signal that continuation vehicles, once viewed with a touch of skepticism, are delivering real value.   If this keeps up, we may need to start treating the secondary market as one of private equity’s most dynamic growth engines. #privateequity #privatemarkets #privatethoughtsfrommydesk

**Harvard is selling. The market is missing the real lesson.** News Harvard is selling $1B of PE funds—5% of their program. That’s not the real story. The real story is how poorly people still misunderstand secondary pricing and GP valuations (or mark-to-market). Secondary pricing isn’t some specific verdict on GP marks. It’s math: cost of capital, asset quality, return targets, duration risk, and the structured lives of funds. Further, Secondary PE is one of the only markets where the asset base decays AND underlying assets reshapes itself constantly. Private equity funds age like bonds. Early on, you’re underwriting fundamental growth. Later, you’re underwriting yield. But unlike a bonds or traditional asset, the portfolio you’re buying in secondaries doesn’t stay static. It changes every quarter. As companies exit—good or bad ones—the underlying value shifts. You might underwrite five portfolio companies in the fund today, and six months later, only three remain. A fund could price at par today, and at an 15% discount six months later, even without any real 'bad news.' The asset itself is a moving target. Good assets leave early. Underperformers might linger. The risk profile evolves deal by deal. And that’s a huge part of what makes secondaries so complex—and so misunderstood. Discounts exist because the risk-adjusted return left in the fund is too small to justify paying full NAV at a buyer’s cost of capital. Required returns vary by buyer, but generally target around 1.4x or a 15% IRR. Funds experience natural return decay over time. Early investments are about real value creation—funds tend to price near NAV or even at a premium. Later in the fund’s life, the return profile looks much more like “yield to maturity”—buyers are purchasing near the peak (a 1.8x mark on the way to a 2.0x target), not at the start. As a result, older funds price at discounts. Not because the companies are poor quality. Not because GPs are mis-marking NAVs. But because the remaining upside is smaller and the time window to realize it is shorter. That’s why you often see mature buyout funds pricing in the 80s. For secondary buyers, late-stage PE investing is about balancing limited upside and time-to-distributions against the return hurdles driven by their cost of capital. Secondary discounts aren’t proof of bad valuations. If you want to truly test a GP’s valuations, watch what happens when real M&A exits print—not when LP interests change hands in the secondary market.

For the first time in venture history, three distinct channels share the liquidity burden roughly equally. A decade ago, secondaries barely registered. They accounted for roughly 3% of exit value in 2015. Today they claim 31% : nearly $95b in the trailing twelve months. The shift accelerated after 2021’s IPO bonanza. When public markets closed their doors in 2022, investors found alternative routes. Secondaries absorbed demand that would have flowed to traditional exits. When Goldman Sachs acquired Industry Ventures, the transaction signaled secondaries have arrived. Morgan Stanley followed with EquityZen, then Charles Schwab announced its acquisition of Forge Global. Wall Street recognized the structural change before most of venture did. This matters for founders & investors. When IPOs dominated exits, fund models assumed a small number of public offerings would generate the bulk of returns. Now liquidity arrives through multiple doors. A founder might sell secondary shares to patient capital while the company remains private. A GP might move positions through continuation vehicles. An LP might trade fund stakes on an increasingly liquid secondary market. The 830 unicorns holding $3.9t in aggregate post-money valuation cannot all exit through IPOs. The math doesn’t work. At 2025’s pace of 48 VC-backed IPOs, clearing the unicorn backlog would take seventeen years. Secondaries provide a release valve that traditional exits cannot. Companies like OpenAI have embraced this reality, running employee tender offers while voiding unauthorized secondary transfers. The largest private companies now manage their own liquidity programs rather than waiting for public markets. Today, secondary liquidity concentrates in the top 20 names. SpaceX, Stripe, OpenAI. For the founder of company #50, the secondary market remains largely theoretical. For secondaries to succeed as a broad asset class, buyers must underwrite positions in companies without household recognition. As the market grows, this coverage gap becomes opportunity. For LPs starved of distributions since 2022, the expansion of secondary channels offers hope. The $169b in cumulative negative net cash flows needs somewhere to go. More exit paths mean more opportunities to return capital. When a Series B employee asks about liquidity today, the answer isn’t “wait for the IPO.” It’s “we’re planning a tender offer next year.” A decade ago, secondaries were a footnote. Now they’re infrastructure. Liquidity flows where it can, not where tradition suggests it should.

Met with a VC General Partner recently who was struggling to close their next fund (Fund III). They were frustrated that LPs (investors) were ghosting them. But here’s the catch: their DPI (cash returns) on Fund I and II was near zero. So, I asked: 🔹 If you had already returned 1x capital to your LPs, would you be struggling to raise this fund? 🔹 The answer: no. We broke it down together: How many of your portfolio companies are actually planning an IPO in the next 12 months? (Likely none). • If, in six months, you utilise a secondary sale or a continuation fund to return actual cash to your investors, you’ll be in a much stronger position to ask for more capital. • You’ll have proof of liquidity, not just "paper marks." Then I asked: 🔹 What have you done to actively manage your exits via the secondary market to justify a re-up? 🔹 The answer: nothing. Here’s the reality: 💡 The era of raising solely on TVPI (paper value) is over. If you want to command capital in this liquidity-constrained environment, you need to show you know how to exit, not just how to invest. 💡 Demonstrate your ability to return cash. Don’t just expect LPs to re-invest because your logo is on a hot cap table. Sometimes, the right move is to pause the roadshow, structure a secondary transaction for your best assets, and focus on getting your LPs paid first. We work with the industry's best funds and help structure liquidity solutions when they are needed. But it’s about generating DPI, demonstrating discipline, and respecting LPs' need for cash, not just gathering AUM. For some GPs, launching the next vintage isn’t the answer yet. Sometimes, managing the existing portfolio and proving you can exit is the best next step.

For the first time, US VC secondary sales exceeded IPO exit value Here's why this matters 👇 ◾️ The numbers are clear (Jun 24' - Jun 25'): - Secondary transactions: $61.1B - IPO exits: $58.8B This isn't a close race anymore. Secondaries have officially overtaken public markets as the primary liquidity mechanism for VC. Here's what's behind this shift. ◾️ Let's walk through each driver, starting with the biggest one: companies staying private longer. The average time to IPO has stretched from 4 years (1999) to 11+ years today. Stripe, OpenAI, and other unicorns have zero rush to go public. Why deal with public market volatility when you can access capital privately? ◾️ Driver #2: The SPV explosion is wild. The data: - 545% jump in secondary SPV count (2 years) - 1,000% growth in total value raised What was once a niche financing tool is now the backbone of venture liquidity infrastructure. ◾️ Driver #3: Tender offers became routine. Companies like Ramp now regularly offer employees liquidity through structured tenders. I think this shift is brilliant – it's simultaneously: - Employee retention tool - Pressure release valve for early stakeholders - Recruitment advantage ◾️ Driver #4: Sector concentration amplifies everything. Hot sectors driving secondary demand: - AI companies (obvious winner) - Cybersecurity (Trump priorities) - National defense (geopolitical focus) When everyone wants exposure to the same 50 companies, secondary markets heat up fast. ◾️ Now, let's talk about what this really means. Here's my contrarian take: this "success" masks a structural problem. When your primary exit strategy becomes "sell to other VCs," you've created a closed loop that doesn't generate real wealth for the broader economy. ◾️ The sustainability question keeps me up at night. The math: - Secondary markets provide liquidity - But they don't create new value like IPOs do - You're shuffling existing equity around Instead of accessing true growth capital from public markets. ◾️ What does this mean for GPs? You need secondary market expertise now. Your LPs will ask about: - Tender offer strategies - Secondary SPV structures - Alternative liquidity plans This isn't optional anymore – it's table stakes for fundraising. ◾️ What does this mean for LPs? I assume you'll see more secondary-focused strategies in GP pitches. But ask the hard question: are you getting exposure to real growth, or just paying higher prices for the same assets in a closed ecosystem? ◾️ Bottom line: we're witnessing a fundamental shift in how VC creates and distributes liquidity. The data supports it. The trend is accelerating. But eventually, this ecosystem needs real exits to public markets. The question is when, not if, this dynamic reverses. What do you think about the state of secondaries market?

Private markets are changing. As companies stay private longer, secondary markets are evolving from a niche liquidity tool into core infrastructure. What started as occasional tender offers has become something much bigger. At SXSW, I’ll be moderating a conversation with leaders at the center of that evolution. Tom Callahan, CEO of Nasdaq Private Market, put it this way: “Secondary liquidity programs, like tender offers, are becoming part of the capital strategy. They keep employees motivated by providing liquidity along the way. They allow early shareholders to participate in the value they helped create. And they create room for new investors to gain exposure to some of the most innovative private companies in the world. As they become more common, a third path is emerging for founders. It’s no longer just IPO or M&A. Staying private indefinitely — supported by systematic secondaries — is increasingly a viable option. That shift is driven by growing demand for liquidity and access to private markets. And with that demand comes responsibility. The ecosystem has to mature, with better data, greater transparency, and infrastructure built for scale.” Jared Carmel, Founder and Managing Partner at Manhattan Venture Partners, adds: “The best companies treat secondary like a financing round, not a cleanup exercise. They bring the same rigor, the same data, the same support they would for a primary. That’s the difference between episodic transactions and real infrastructure.” Eric Yi, Head of Secondary Private Markets at Citi, notes: “Seven private companies now have a valuation of $100B or more. The secondary market enables investors to unlock material returns that were historically reserved for IPOs and strategic takeouts. This is increasingly evident through the growth of secondary funds, tender offers, and open-market single-name transactions. As companies remain private for longer and the venture ecosystem expands, secondary market activity is accelerating alongside these secular trends. Additional developments include the growth of SPVs and increased participation from strategic investors. As the venture market continues to mature, the demand for liquidity solutions will only intensify.” Secondaries are no longer “secondary”. They are becoming a defining layer of the modern private company lifecycle. As private markets become core arenas for growth, companies stay private longer, and access broadens, so does the need for institutional-grade intelligence on private companies and private markets. Looking forward to the discussion at Capital Factory on 3/14 during SXSW. Join us!

The first episode of our new VC Series on the GTMnow Podcast is live! He’s a must follow and the legend of S-1 teardowns. The episode kicks off with Paul Irving and me sharing what we’re seeing in the market right now and reflections on the episode, before I sat down with Alex C., GP at Meritech. Key takeaways: 1. Two metrics matter more than any dashboard: GAAP revenue and cash burn. No matter how complex your reporting gets, it all compresses down to these two truths: how much money is actually coming in (GAAP revenue), and how much it costs you to earn it (cash burn). ARR can be gamed with multi-year contracts or soft pilots. CAC payback, NRR, and gross margin are all useful, but ultimately show up in how efficiently you’re converting spend into real dollars. If you’re early-stage, obsess over these. If you’re growth-stage, you’ll be judged by them. In AI’s chaotic metrics era, they’re still the clearest signal. 2. Secondaries have gone from edge case to mainstream liquidity strategy. The IPO window is no longer the singular goalpost. With companies now staying private for 12–17 years, secondaries have scaled 5X over the last decade and, in many years, outpace IPO volume entirely. That shift reshapes the incentives for everyone: founders get partial liquidity earlier, employees can unlock life-changing equity without waiting a decade, and seed funds can return capital while still holding upside. We’re in a new exit economy. 3. The traditional 10-year venture fund is buckling under modern timelines. Fund structures built for a world where IPOs happened in 5-7 years are mismatched with today’s private-market dynamics. When iconic companies like Stripe, Databricks, and SpaceX compound for 15+ years without going public, GPs need more flexibility. That’s driving a surge in rolling funds, continuation vehicles, and creative secondaries – tools that let funds adapt to longer holding periods while still returning capital to LPs. If you’re building or backing long-duration winners, this structural shift matters as much as product or market. 4. AI-native startups are smashing the SaaS growth curve and changing what "good" looks like. In traditional SaaS, “triple-triple-double-double” was the gold standard. Now? Some AI-native companies are hitting $50-100M ARR in under two years. That level of velocity redefines expectations: investors are increasingly tolerant of imperfect churn or thin margins if the growth curve is steep and non-linear. More than revenue, it’s about speed, signal, and slope. Founders in AI need to recognize that benchmarks have shifted. Growth-stage investors are playing by different rules and your numbers need to be reframed accordingly. Thank you to our VC series partner AngelList , who have been instrumental in helping GTMfund scale and evolve since day one. Watch the full episode on YouTube or wherever you get your podcasts.

Private Equity’s New Normal: Fewer Exits, Bigger Secondaries What today’s slowdowns tell us about tomorrow’s alpha What if illiquidity is no longer a feature—but a flaw investors are solving for? Private equity used to be the “patient capital” story. You accepted the wait because the payoff was worth it. But Q1 2025 is rewriting the script. Global exit value dropped 28%. Trade sales fell 17%. Secondary buyouts? Down 12%. Fewer paths out means LPs are waiting longer to see distributions hit their account. And here’s the kicker: that capital’s not just delayed—it’s less predictable. But here’s where it gets interesting. Secondaries raised $33.5B this quarter. That’s 30% of all private equity fundraising, the highest share on record. In my view, this isn’t a blip. It’s a pivot. Investors are shifting from locked-up to liquid-optional. GPs are structuring continuation vehicles. LPs are allocating to secondaries not just to solve liquidity—but to buy into dislocation. And investors like us? We’re building this into our allocation models. This is not a crisis—it’s a correction in expectations. So what should investors do? - Reassess your exposure: Not all “long-term” vehicles are created equal. - Some are now liquidity-trapped. - Rethink pacing: If exits slow, commit pacing models must adapt or risk liquidity strain. - Lean into secondaries: They’re not just defensive—they may offer access to discounted assets and vintage diversification. What we’re watching - GP-led deals accelerating mid-year - Appetite for preferred equity structures - LP-led portfolios trading at 85–90 cents on the dollar If the 2010s were about capital growth, the late 2020s may be about capital control. #bealtetnative #alternativesforall

“The amount of calls I’ve received from limited partners seeking liquidity in the past few days is the most since the first days of Covid,” said Matthew Swain, head of private capital at Houlihan Lokey. “People were banking on IPOs to meet their liquidity needs and now need to raise cash just to meet capital calls.” The race to find liquidity signals that investors in private equity funds increasingly expect to receive few cash profits from their holdings this year and may face liquidity pressures that cause them to further retrench from making new investments. Last year, the private equity industry’s assets dropped for the first time in decades, according to Bain & Co, as fundraising plunged 23 per cent from 2023. “If the public market keeps going down and down, the denominator effect will become an issue again,” said Oren Gertner, a partner specialising in secondaries at law firm Sidley Austin. The prices of second-hand private equity fund stakes, which had risen to nearly 100 cents on the dollar in recent quarters, could fall to levels below 80 cents on the dollar, they forecast. “Most people don’t want to sell below 80 per cent of a fund’s net asset value or less, but this time could be different,” said one top banker. https://lnkd.in/eSTWHzXp

Over each of the past 2 years, just 𝟱% of the total VC market value has been distributed to LPs—leaving a 𝗺𝗮𝘀𝘀𝗶𝘃𝗲 𝗴𝗮𝗽 𝗶𝗻 𝗹𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆. What can GPs do? 𝗘𝗻𝘁𝗲𝗿 𝗖𝗼𝗻𝘁𝗶𝗻𝘂𝗮𝘁𝗶𝗼𝗻 𝗙𝘂𝗻𝗱𝘀 💡 • LPs are restless for liquidity. While recent fund vintages don't have DPI to give, more mature venture funds are stretching well beyond their original 10-year timelines. 1-to-2 year extensions are manageable, but after 12+ years (with fees piling up), LPs understandably want their money back. •  Continuation funds have become a go-to strategy in private equity to fix this problem. LPs can either cash out or roll over their interests into a new vehicle. This provides liquidity for LPs who want to cash out while allowing long-term investors to stay invested & maintain exposure to the portfolio. According to a 𝗨𝗻𝗶𝘃𝗲𝗿𝘀𝗶𝘁𝘆 𝗼𝗳 𝗖𝗵𝗶𝗰𝗮𝗴𝗼 𝗕𝗼𝗼𝘁𝗵 paper: 🔹 +𝟳𝟱𝟬% 𝗶𝗻𝗰𝗿𝗲𝗮𝘀𝗲 in deal value over 5 years, hitting $68 billion in 2021. 🔹 𝟴𝟬-𝟵𝟬% 𝗼𝗳 𝗟𝗣𝘀 in legacy funds opt to cash out rather than roll over. 🔹𝟰𝟰-𝟱𝟬% of total secondary market volume came from GP-led secondaries between 2020-2023—that is, $102-126 billion annually. However, there are challenges, particularly in venture capital: 🔹 𝗤𝗦𝗕𝗦 𝗘𝗹𝗶𝗴𝗶𝗯𝗶𝗹𝗶𝘁𝘆: When a continuation fund buys assets from the original fund, LPs might lose their QSBS eligibility. QSBS typically requires the stock to be held directly by the taxpayer or through a pass-through entity (like a VC fund) for at least 5 years. Careful tax structuring around this is possible, but it adds complexity. 🔹 𝗖𝗼𝗻𝗳𝗹𝗶𝗰𝘁𝘀 𝗼𝗳 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁: GPs may collect more fees and carry without full performance alignment, creating tensions between LPs & new LPs. Also LPs often lack sufficient data for informed decisions. 🔹 𝗡𝗼𝘁 𝗮𝗹𝗹 𝗟𝗣𝘀 𝘄𝗮𝗻𝘁 𝗼𝘂𝘁: Some LPs may prefer to stay invested—there's no "status quo" option; LPs forced to cash out or accept new terms. 🔹 𝗖𝗼𝗺𝗽𝗹𝗲𝘅𝗶𝘁𝘆 𝗮𝗻𝗱 𝗥𝗮𝗿𝗶𝘁𝘆: While this strategy is relatively common in PE, it's uncommon in VC, at least from my experience. Would be interested to hear how costs and time play a role in this strategy. Cooley has offered some alternative strategies for creating liquidity while managing ongoing investments in a VC fund (link in comments). 𝗕𝗼𝘁𝘁𝗼𝗺 𝗹𝗶𝗻𝗲: Continuation funds are an option to provide liquidity to LPs without forcing GPs into bad exits. But GPs need to provide full disclosure of all potential conflict of interest and have full alignment with a majority in interest of their LPs. Thoughts? Anyone else seeing this trend? How are GPs balance their LP liquidity needs with long-term value creation for their portfolios?