Not So Private Anymore: Why Venture Capital is Embracing the Private Secondary Market

The private market is now less private - and that’s a good thing. For years, private market secondaries operated in the shadows. Secondaries were a niche corner of the investment landscape, often viewed as a complex, opaque arena dominated by specialized funds. But the secret is out. The once-private domain of secondary transactions – buying and selling existing shares in private companies – is becoming increasingly mainstream, and notably, traditional venture capital firms are getting involved.

This isn't just a fleeting trend; it's a fundamental shift. More VCs are actively participating in secondary transactions, driven by two goals: gaining access to sought-after investment opportunities they might have missed earlier and, crucially, generating much-needed liquidity from their existing portfolio positions. Why the change? The venture ecosystem itself is navigating a significant inflection point.

A Flywheel in Waiting

The traditional venture capital playbook relies heavily on a predictable lifecycle: invest early, nurture growth, and exit via a lucrative Initial Public Offering (IPO) or strategic acquisition within a 5-7 year timeframe. This model allowed for the timely return of capital to Limited Partners (LPs), which fueled the engine for raising subsequent funds.

However, the landscape has dramatically changed. Companies are staying private for much longer¹ – often a decade or more. Several factors have contributed to this:

1. Abundant Private Capital: The rise of mega-funds, sovereign wealth funds, and crossover investors pouring capital into late-stage private rounds has reduced the urgency for companies to tap public markets for growth funding. While private market investors seem to be more discerning than in the 2021 height of the venture bubble, successful, fast-growing companies continue to have access to private capital to fuel their growth well into their teenage years.
2. Avoiding Public Market Scrutiny: Staying private allows companies to avoid the intense quarterly scrutiny, regulatory burdens, and costs associated with being publicly listed. They can instead focus on long-term strategy that sets them up for potential long-term success without navigating the whims of public investor sentiment.
3. Market Uncertainty: Periods of public market volatility further incentivize companies to delay going public until conditions are more favorable. Looking at the recent market volatility, who can blame companies for opting to forgo the market swings by staying private? While we entered 2025 with a robust pipeline of IPO candidates, most are waiting for the markets to calm before making their public market debut. 
   
   As a result, the IPO, once the celebrated graduation event for successful startups, can no longer be reliably counted upon (or patiently waited for) as the default exit mechanism for early-stage investors and their LPs. The decline in traditional exits to a decade low has fundamentally altered the expected timelines and pathways to liquidity.

The Liquidity Logjam: When Exits Stall 

This extended private lifespan is driving a capital crunch. Venture funds operate on cycles. LPs commit capital based on expected timelines for returns and distributions. When portfolio companies stay private longer and IPOs dwindle, those anticipated distributions fail to materialize. 

This creates a cascade effect:

• LP Pressure: Limited Partners, such as pension funds and endowments, rely on distributions to meet their own obligations. They also need distributions to re-invest in future funds. As exit timelines prolong, the internal rate of return (IRR) for VC funds decreases as well. All together, this can strain LP relationships and can make fundraising for future VC funds more challenging. 
• VC Capital Constraints: Without recycling capital from successful exits, VCs have less "dry powder" to deploy into new investments or support their existing portfolio companies through follow-on rounds. The capital intended for the next "vintage" of startups gets locked up.
• Ecosystem Slowdown: The lack of fresh capital deployment, particularly at the late stage, reverberates throughout the entire market. Early-stage startups find subsequent funding rounds harder to secure, potentially stifling innovation. This doesn’t just impact new founders seeking capital. As investor Hunter Walk emphasizes, liquidity isn't just a late-stage problem; selling shares via secondaries is becoming essential, especially for early investors and employees holding valuable, but illiquid, stock options long before a distant IPO.

Luckily, there is a solution. When the primary exit highway (IPOs) is congested, the secondary market emerges as a vital alternative route.²

The Secondary Solution

The secondary market provides a mechanism for shareholders – founders, employees, early investors, and even VCs themselves – to gain liquidity before a traditional exit event. In fact, Charles Hudson of Precursor Ventures predicts that up to 80% of the dollars that LPs get back in the next five years will come from secondaries. For VCs, engaging in secondaries offers several strategic advantages:

• Generating Liquidity: VCs can selectively sell portions of their stakes in mature portfolio companies via the secondary market. This allows them to return capital to LPs, demonstrate performance by realizing returns, and free up capital for new investments without waiting for an M&A deal or IPO. Secondaries help VCs manage both fund lifecycles and LP expectations - a win-win.
• Accessing Opportunities: The secondary market allows VCs to buy into promising companies they missed in earlier primary rounds or to increase their position in high-conviction portfolio companies. It's a way to deploy capital into attractive, later-stage assets outside of competitive primary funding rounds. As the competition to participate in funding rounds for the hottest AI companies heats up, this is becoming all the more important.
• Portfolio Management:  The old venture model was one of buy and hold. The new market calls for a new model. Secondaries offer VCs tools for active portfolio management, allowing them to rebalance positions, consolidate stakes, or exit positions that no longer fit their strategic focus, all with the goal of maximizing returns for LPs.
• Supporting the Ecosystem: By facilitating (via their board rights) or participating in secondary sales for founders and employees, VCs can help their portfolio companies attract and retain talent by enabling a path to liquidity for valuable stock options long before a public listing. As we have seen from the hundreds of companies we’ve worked with, liquidity is one of the most impactful benefits a private company can offer its employees. VCs that support liquidity can help give their portfolio companies a competitive edge.
  

From Hesitation to Participation: VCs Formally Embrace Secondaries

While some level of secondary activity has always occurred quietly, the scale and openness are new. Historically, many VCs hesitated, perhaps concerned about signaling risk - could selling imply a lack of faith? - or the complexity of transactions. However, the market's evolution and the undeniable need for liquidity have overridden these concerns. In fact storied VCs from Tomasz Tunguz to Hunter Walk have recently sung the praises of secondaries. An even longer list of VCs are engaging in secondaries, even if not publicly.

The significant downturn in IPOs and M&A activity has directly fueled the rise of secondaries, transforming them from a niche consideration into a necessary component of the venture capital toolkit. As Forerunner Ventures’ Kristen Green explained, the secondary market is “continuing to drive the industry”, allowing “people to unlock returns and liquidity.” This isn't just anecdotal; it's reflected in structural changes within VC firms themselves. A notable number of prominent venture capital firms have taken the step of registering as Registered Investment Advisors (RIAs) with the SEC in recent years. While RIA registration encompasses various advisory activities, it specifically provides a clearer regulatory framework for managing funds or transactions involving secondary shares. Registration enables these firms to operate strategically within this increasingly vital market.

The Future is Liquid (and Less Private)

The increased participation by VCs in the secondary market signifies a maturation of the private investment landscape. It reflects an adaptation to the reality of longer holding periods and the need for nearer-term liquidity solutions. Far from being a sign of distress, secondary market activity is becoming a hallmark of sophisticated fund management and a vital mechanism for enabling a flywheel effect within the venture ecosystem.

As companies continue to leverage the benefits of staying private longer, the secondary market will only grow in importance. It provides essential flexibility and liquidity, ensuring that capital continues to flow, innovation is funded, and stakeholders across the board – from LPs and VCs to founders and employees – can realize the value they've helped create, even before the bell rings on Wall Street. The secret is out, and the private markets are better for it.

Not all pre-IPO companies will go public or be acquired, and not all IPOs or acquisitions are or will become successful investments. There are inherent risks in pre-IPO investments, including the risk of loss of the entire investment, illiquidity, and fluctuations in value and returns. Investors must be able to afford the loss of their entire investment.  The information is intended for reference only and does not constitute a recommendation or personal financial advice.

Footnotes:

1. Morningstar, 2025.

2. Secondary market transaction closings are not guaranteed.