Secondary transactions

Secondary transactions often occur at slight discounts compared to primary rounds due to the psychological anchoring of valuation from the most recent round. Most deals fall within a range of plus or minus 20% of the anchor price 1.

In venture markets, secondary transactions typically represent 15-20% of primary dollars. This estimation varies based on the definition and scope of secondary transactions, be it liquidity for founders or institutional secondary transfers 2.

Secondary transactions allow founders and early employees to liquidate shares, providing personal financial benefits before a company goes public. This practice is becoming increasingly common as startups delay IPOs 3. The difference between primary and secondary transactions is that primary involves new equity issued by the company, whereas secondary involves the transfer of existing shares between private parties 4.

To be successful in secondary markets, having strong relationships with general partners (GPs) and access to information is crucial. Secondary markets can include direct company secondary deals, involving individual high-profile companies, and portfolio secondary deals, which are more complex but can offer attractive pricing opportunities 5.

For further insights, the episode "Secondary Investing in Private Markets" from the Invest Like the Best podcast is highly recommended.