The Rise Of Secondaries In Tech

September 20, 2021 12:42 pm

Roman philosopher and statesman Seneca said: “It is not because things are difficult that we do not dare; it is because we do not dare that things are difficult.”

Tech investment managers are looking for ways to deploy more money into the market. This is a natural trend within any successful financial market offering superior returns. As additional funds flow in, returns start diminishing causing the market to swing back to equilibrium. However as “tech is eating the world,” this rule holds only partially true for tech investment managers. As the combined capitalization of public and private tech companies is going through the roof, inventive investment managers are always searching for new ways to allocate more capital to the show.

Secondaries is an old strategy. One of the earliest private equity strategies was the leveraged buyout, which assumes a secondary purchase of shares from inefficient owners with the aim to squeeze maximum efficiency from the underlying business, including but not limited to the application of leverage. However, in the venture capital world, key strategies were aimed at financing research and development and growth, i.e., primary investing into the capital of fledgling companies. Even today, the key thesis of venture capital (VC) firms revolves around providing entrepreneurs capital to innovate and risk sharing between the VC players at the table.

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