Venture Secondary Market: A Bridge to Liquidity for Tech Start-ups
Starting a company and raising funds from venture capital is like entering into a long-term relationship for all stakeholders involved – founders, employees, and investors. Successful ideas need their time to gestate, which from an investment perspective also means accepting illiquidity in exchange for (hopefully) attractive returns. However, as in every relationship, the ride may have its bumps and the notion of being stuck together “till exit do us apart” may create friction. Since the current average time for a start-up from inception until an IPO (initial public offering of private companies on public markets) is well over ten years, the waiting time for an exit event may seem longer than what some may consider reasonable.
Luckily, there is a solution for shareholders in private companies who seek liquidity prior to an exit event. This solution is the sale of shares to secondary investors. The transactions involving shares of private companies are called direct secondary investments. These transactions are increasingly common also for high-growth, venture-funded technology companies.
Secondary market activity is closely linked to the maturity of an investment universe. Central and Eastern Europe (CEE) with its vibrant yet relatively young tech ecosystem is the next frontier for direct secondary investments. Read more.