What even are secondaries?

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If you’ve been keeping tabs on our recent newsletters you’ll know that the private equity landscape is vast and diverse, offering many opportunities beyond the usual early-stage VC or classic M&A. One of the most popular emerging, and often misunderstood areas of private equity right now is secondaries. They’re changing how investors think about liquidity, reshaping strategies for founders, and offering lifelines for fund managers who want or need to exit earlier. In this week's newsletter, we’ll dive deeper into what secondaries are, how they’re reshaping the PE/VC space, and why they’re becoming more popular than ever.

So, what exactly are secondaries?

A “secondary” in the context of private markets typically refers to the purchase or sale of existing shares in a private company (or sometimes entire portfolios of shares) from current shareholders. Instead of investing in new shares (like in a typical fundraising round), secondary buyers step in to acquire existing shares from current investors, early employees, or even the founders themselves.

Here are some common scenarios where secondaries come into play:

• Employee liquidity: Early employees holding valuable equity (think Stripe, Canva, Databricks, and other pre-IPO giants) might want to cash out some of their shares before an increasingly distant IPO.

• Fund rebalancing: Venture capital or private equity firms might want to offload part of their stake in certain portfolio companies to free up capital for new investments or to manage risk.

• Investor exits: Maybe a fund’s lifecycle is near its end, or a limited partner (LP) wants to exit their position in a PE/VC fund. Secondaries give them a path to do so without waiting for an IPO or acquisition event.

Why are secondaries surging in popularity?

• Sluggish IPO markets: One of the biggest catalysts for secondaries right now is the near standstill of initial public offerings. When companies aren’t rushing to the public markets, early shareholders are stuck waiting. Secondaries provide a welcome solution by offering partial (or total) exits before an IPO.

• Longer time to exit: Startups today often stay private longer. That means the window for returning capital to investors has stretched. In response, secondaries give founders, employees, and early investors an avenue for liquidity without forcing the entire company into an early exit or public listing.

• High demand for top-tier private companies: There’s a huge appetite among institutional and even retail investors to hold shares in fast-growing private companies. When the pipeline of unicorns going public slows, secondaries become the next best thing. They give new investors a chance to get in on a company that has (hopefully) de-risked some of its early-stage challenges and is scaling at speed.

• More flexible deal structures: Secondary deals can be tailored to different needs, partial sales of individual shares, structured buyouts of a large chunk of a cap table, or specialised secondary funds acquiring entire portfolios from other funds. This flexibility means sellers can find liquidity solutions that fit their specific situation while buyers get access to attractive assets that might otherwise be off-limits.

The impact on the private equity/venture capital ecosystem

• Liquidity for stakeholders: Historically, one of the biggest knocks on private equity and VC was the lack of liquidity. Secondaries solve this pain point by letting key stakeholders monetise their stakes without waiting for a full exit. This is especially beneficial to employees or founders who have poured their lives into the business and may need capital for personal reasons.

• Price discovery: When a secondary deal occurs, it helps establish a market-driven valuation for the company (or for a stake in a fund) outside of a formal fundraising round or an IPO. This can be both a blessing (if valuations are high) and a curse (if the market sets a price lower than the previous funding round).

• Shifting fund strategies: Private equity and venture capital firms are increasingly launching dedicated secondary funds or dedicating a portion of their existing funds to secondaries. It’s a way to diversify portfolios and take advantage of the rising demand for earlier liquidity options.

• Fueling the private market machine: By offering liquidity earlier in the lifecycle, secondaries encourage more people to participate in the private markets, whether they’re founding companies, joining them as employees, or investing in them as angels or LPs. Knowing there’s a viable secondaries market helps all these stakeholders feel more comfortable taking a leap into the private sphere.

Why secondaries matter now more than ever

• Market downturns and corrections: In times of market stress, founders and early-stage investors may need liquidity more urgently. Secondaries can provide that lifeline.

• Balancing portfolios: Institutional investors, family offices, and retail investors look to secondaries as a way to diversify and gain exposure to growth-stage assets.

• Employee retention: Giving employees a way to realise some gains can help private companies retain key talent longer, critical for startups navigating challenging or uncertain times.

Secondaries have emerged as a big positive in the private equity and venture capital universe. They offer a much-needed liquidity solution in an environment where IPOs are sluggish and companies remain private longer. For founders and employees, it’s often a welcome chance to realise some gains early. For investors, it’s a crack at owning a piece of high-growth companies that might still be years away from going public.

Whether you’re an early investor, employee or fund manager, secondaries are worth paying attention to. And, with the way the market’s shaping up, they may well become a standard part of every private market strategy.

As always, thanks for reading and feel free to reach out with any questions, comments, or thoughts. Next week we’ll continue diving deeper and sharing more insights into the ever evolving world of private equity!

What we’ve been working on at Shuttle

• We’ve officially locked in the first of two deals for our next drop 🔒

• We’re working on a newsfeed for updates from our portfolio companies 🗞️

• Prepping the platform for the next launch later this month 🚀

• Planning out a new video series about the inception of Shuttle 🎬

The Unsophisticated Investor is brought to you by Scott & Rob, the founders of Shuttle. We’re both sick of private markets being a playground exclusive to the ultra-wealthy so we started a company to challenge the status-quo. Shuttle’s singular focus is to unlock private markets for tech professionals and help them build wealth through the highest performing private market opportunities.

Scott & Rob
Shuttle Co-Founders