From the market were fixed in 2022, the funding rounds in the later stages were few. It has been difficult to predict what is still attractive to investors in the later stages of the business market, or what any of the existing unicorns are worth today. As such, the secondary market gives us valuable context on how investors think about valuing companies.
However, the secondary market was not immune to market conditions. Investment volume in this sector has ebbed and flowed after the market correction, although less dramatically than on the primary side. If the initial IPO window reopens in 2024, as many predict, the secondary market will likely begin to return to normal.
But how do secondary market investors feel about the market now? To find out, TechCrunch+ surveyed five venture secondaries investors, and they said there are many aspects of the current venture secondary market worth getting excited about.
John Zic, EQUIAM’s founding partner, for one, sees extreme discounts even for stocks of companies that maintain attractive growth and financial trajectories. “We see attractive opportunities in many areas, particularly in fintech, cybersecurity and marketing technology,” said Zic. “Some companies in these sectors continued to meet their financial targets over the same period.”
Other investors also said they are using this time to bolster their equity positions in existing portfolio companies.
“We do extensive follow-up [investments] across all performing companies in our portfolio,” said Michael Szalontay, Flashpoint’s co-founder. “It’s a great time to shop, especially on sale [on] a secondary basis. The main driver of our decision is the growth, profitability and also the runway length of each portfolio company.”
All agreed that prices for these company shares have fallen significantly and that valuations have probably not yet reached their nadir. However, there was no consensus on how close valuations are to the bottom: while Szalontay said positive signaling from the Fed on interest rates could be seen as a sign that we should be near the bottom, others did not necessarily agree .
Read on to find out which sectors investors think are most excited about the secondary market, why some investors aren’t sure if mainstream VCs should return to the space if things open up next year, and why LPs actually aren’t so thirsty for liquidity as you think.
We spoke with:
John Zic, Founding Partner, EQUIAM
Where do you see attractive opportunities in secondary ventures?
We see attractive opportunities in many areas, particularly in fintech, cyber security and marketing technology. Amid the broader tech slowdown since early 2022, these sectors have experienced even sharper valuation declines. However, some businesses in these sectors continued to meet their financial targets over the same period.
Have these opportunities changed from the 2021 highs?
By the end of 2021, almost every sub-sector of the tech market was overvalued (on a historical basis), so I wouldn’t use the word “attractive” to describe any specific parts of the market.
From a trade flow perspective, there was significant secondary trade flow in blockchain/cryptocurrency companies as the final act of buying cryptocurrencies took place. As you can imagine, the flow of transactions in these companies has almost completely stopped in the last 2 years.
