If you asked a bunch of VCs at the end of 2023 if the IPO market would finally reopen in 2024, most of them would say yes. We know because TechCrunch surveyed over 40 of them in December and this is what they said.
However, with two weeks left in Q1, no major IPOs have yet been completed, and very few are in the works. Reddit is the only major IPO far enough along to be priced. Otherwise, there is just speculation about who might go public, with very few public SEC filings. For example, there’s Shein, which reportedly filed a confidential S-1 last fall, or car rental marketplace Turo, which is still waiting on the sidelines after filing its initial S-1 in 2022.
It’s unclear whether the markets will reopen later this year, even if Reddit’s offering is a hit. Secondary investors recently told TechCrunch that while Reddit could generate some additional activity, it likely won’t be the opening of the IPO floodgates that investors were hoping for. Additionally, some of the biggest names expected to go public this year — Databricks, Stripe, and Plaid — have either said outright that they won’t IPO in 2024 or held funding events that suggest they won’t be going public anytime soon.
While many investors I want IPOs to reopen in 2024, market conditions are not ideal. Interest rates are still high, making money expensive and pulling investors away from equity and into bonds. Valuations are still retreating from their 2021 highs, with late-stage venture capitalists looking to make little — or even lose money — if their startups went public now.
However, the outlook for liquidity in 2024 is not all doom and gloom if IPOs do not return. Investors can, and increasingly do, turn to secondary markets, where private companies can authorize their shareholders to sell a limited amount of stock to approved investors. This is not a public sale. Shareholders cannot sell to anyone at any time. But in 2024, it has become an often preferred substitute.
Subsidiary trading grew from $35 billion in 2017 to $105 billion in 2021 and is expected to total $138 billion by 2023, when year-end accounts are available. according to evidence by Industry Ventures.
Secondary markets — the best of both worlds
Alan Vaksman, founding partner of Launchbay Capital, said the secondary market allows companies to get the best of both worlds. Startups are able to appease their liquidity-seeking investors by allowing them to sell all or part of their company’s equity without having to hold an early exit event.
“It releases that pressure for liquidity for some of the investors,” Vaksman said. “You created liquidity for the ones you wanted, you didn’t upset your late-stage investors, and you’re taking the time to grow. The secondary market allows it now.”
Stripe’s recent secondary sale is a clear example of this. In February, Stripe announced it had reached an agreement with its investors to provide liquidity to its employees in a sale that valued the company at $65 billion. While that’s down from the $95 billion valuation the company raised in 2021, it’s a huge increase from their last seed round that valued the fintech at $50 billion last year.
This secondary selloff shows that investors are willing to continue pushing Stripe’s valuation toward a 2021 high, and that it’s easy for employees to cash in on some of their shares ahead of an IPO event. So why does Stripe want to go public in 2024 before its valuation fully recovers?
Secondary markets have always targeted workers. What’s newer is that VC funds and LPs are starting to lean on them. Nate Leung, a partner at Sapphire Ventures, said companies may choose to offload some shares to free up some cash while retaining some of their stakes. But companies can also use them to buy shares and increase their stakes in promising startups.
Leung said Sapphire deployed about $500 million in the secondary market in 2023 and expects to deploy the same if not more in secondary stakes in 2024.
Shasta Ventures reportedly hired Jefferies Financial for a ‘strip sale’ Bloomberg reported, meaning it was looking for secondary buyers for a selection of its portfolio holdings. The report did not include which startups it is looking to sell, but its portfolio includes companies such as Canva, which Shasta backed in an early round in 2013 and is now valued at $40 billion according to secondary data platform Caplight.
The IPO market won’t remain frozen forever. But given the maturity of the secondary market, it doesn’t need to unfreeze before the market is really ready.
The secondary market “plays a huge role,” Leung said of companies waiting to go public. “You can achieve many of your initial goals for both employee and investor liquidity, as well as LPs, by selling outright or structuring secondary deals. [LPs] they don’t pressure GPs to push their assets, which reduces demand for the public market.’
