Brian Nichols’ Post

A telling of what is coming to the industry: - 💰 Scarce liquidity in venture capital has propelled StepStone Group Group to raise $3.3 billion for a new secondary venture fund, surpassing last year’s total for all such funds. - 📉 Venture investors and limited partners, seeking payouts amid a slow exit environment, are turning to secondary funds which buy startup and *LP stakes*. - 🔍 Arbitrage opportunity, purchasing stakes at 50% to 100% discounts and capitalizing on valuation growth. • 🔄 Venture investors committed large amounts of capital in 2021, but the slowdown in IPOs and M&A since 2022 has driven the need for alternative liquidity options. Thank you Brian Borton, CFA and Kyle Stanford, CAIA - Marc Vartabedian great insights. #VentureCapital #LiquidityCrisis https://lnkd.in/eWzW9-az

The largest-ever secondaries fund dedicated to the venture capital space has just closed, courtesy of StepStone Group. The firm managed to collect no less than $3.3bn for StepStone Group VC Secondaries Fund VI. The vehicle has a broad remit, targeting everything from LP-leds to GP-leds and even direct secondaries, in which it will directly acquire late-stage startups from fund managers and other shareholders. As we mentioned previously, investors are actively looking for cash from their private markets assets as fund distributions have slowed. According to Preqin, capital called has exceeded capital distributed since 2018 by a massive $1.57tn. This has put secondaries firmly in the spotlight and the market now accounts for 8% of total AUM in private markets, per Bain & Company. And despite pricing for VC assets remaining relatively low, at 63%-68% of NAV in the LP-led market according to PJT Partners [https://lnkd.in/d3aQBM-x], the increased pressure to source liquidity for investors will continue to fuel the secondary market. John Avirett, a partner at StepStone, commented: “With exit timelines extending by several years and trillions of dollars locked up in illiquid private companies, that mindset is starting to change. Shareholders of venture-backed companies, limited partners, and fund managers are increasingly turning to the secondary market as a tool for interim liquidity. We are in a privileged position to help each of these parties achieve their goals through the solutions we offer.” #secondaries #privateequity #PE

The recent news of StepStone Group raising a record $3.3bn fund to acquire stakes in existing VC funds at a discount is a new step towards enhancing the secondary market for this asset class. An efficient secondary market is crucial for the health of any investment ecosystem. It provides a modicum of liquidity, mitigates risk, and offers investors the flexibility to adjust their portfolios as market conditions evolve. #VentureCapital #Investing

Venture capital is facing a reality check in 2024, with firms expected to raise less than $200 billion—a significant 48% drop from 2021's peak. As the market tightens, firms are downsizing, promotions are slowing, and competition for deals is fiercer than ever. The industry, once glamorized, is now marked by frustration, intense office politics, and limited growth opportunities. Investors are rethinking their careers, with many seeking exits. The VC landscape is shifting, and the allure of the industry is fading fast. #VentureCapital #Investment #MarketTrends

The venture capital secondaries market, though long overshadowed by its private equity counterpart, is rapidly gaining traction. With limited partners and other stakeholders seeking liquidity and companies staying private for longer, VC secondaries are now finally coming into their own. Recent developments bear this out. Last month, StepStone Group closed the largest VC secondary fund in history with $3.3bn, surpassing its $2.6bn target. Similarly, Industry Ventures in September secured $1.45bn for its tenth fund, a significant increase from its previous effort. These milestones underscore the growing demand for secondary capital in the early-stage ecosystem. Speaking to Venture Capital Journal (https://lnkd.in/gb2-mK6P), John Avirett from StepStone Group points to LPs' hunger for distributions as a key driver. As LPs receive returns from GP-led transactions, they are more likely to inquire with their other venture fund managers about the potential for such deals, creating a network effect that could propel further growth. Another phenomenon boosting VC secondaries appears to be the lengthening time companies remain private. This reinforces the denominator effect for certain investors, who end up with too many private assets because companies are not going public as quickly as they used to. In such cases, these investors are turning to the secondary market to rebalance their portfolios. Ultimately, the secondary market plays a crucial role in maintaining equilibrium within the venture capital ecosystem. By offering liquidity, secondaries firms support the health and growth of the primary market. As Hans Swildens, founder and chief executive officer of Industry Ventures, puts it: "It's almost like we operate as a coach, a therapist, a bank account that they can ask for money from, and we are a stabilizing part of the market. If it was only a primary market and there was no secondary market, the market itself wouldn't be very healthy." #privateequity #venturecapital #secondaries

How is the venture capital landscape shifting in 2024? With firms expected to raise less than $200 billion—a nearly 50% drop from 2021—#VCs are navigating a new reality. Downsizing, slower promotions, and fierce competition for deals are reshaping the industry, leaving younger #investors frustrated and office politics on the rise. As the market corrects itself, many are reconsidering their future in #VentureCapital. What does this mean for the industry's trajectory? Read more in Sri Muppidi’s article for Business Insider: https://lnkd.in/gPqvu9-h

Global private markets investment management firm StepStone Group recently closed the largest-ever Venture Capital Secondaries Fund. 💸 $3.3 billion for StepStone VC Secondaries Fund VI, L.P. ("VSF VI"), with oversubscribed commitments from existing and new limited partners. 💡 VSF VI seeks to provide liquidity to founders and early investors in mature venture-backed companies, purchase interests in venture capital funds from limited partners, and assist fund managers with structured solutions such as portfolio strip sales, tenders, and continuation funds. 🌍 Global 📈 Stepstone is responsible for $678B in total capital and is one of the largest and most active allocators to venture capital and growth equity in the world. The venture capital and growth team comprises of over 75 investment professionals, making them a significant force in the industry. The wider team of 990+ experts operate from across 27 offices worldwide. 💭 “Shareholders of venture-backed companies, limited partners, and fund managers are increasingly turning to the secondary market as a tool for interim liquidity. We are in a privileged position to help each of these parties achieve their goals through the solutions we offer.” - John Avirett, Partner at StepStone 🗞️Steptone https://lnkd.in/ea2zZCby 👏 For the #AudaciousInvestors unleashing innovation and empowering tomorrow🚀 John I Hunter I Phillip I Deric I Thomas I Anthony I Leyla I Dale I Andy I Huff I Greg I Stephen I Jennifer I Brian I Andrew I John I Jim I Vincent I Seyonne I Adair I C. Ashton I Lindsay I Hunter I Team Stepstone … #venturecapital #vc #funds #startups #entrepreneurs #funding #tech #usa #entrepreneurship #technology #innovation #secondaries #venture

What KPIs do venture firms care about across stages? When it comes to securing venture capital, four key metrics stand out as essential across all stages of a startup's growth. Unsurprisingly, revenue remains the #1 metric regardless of the companies stage. Net Burn Rate, Cash on hand, and Full-Time Employee Headcount are also common across the different stages.

Spotting a “massive and growing opportunity” after investors became overexposed to start-up bets, StepStone Group has closed a $3.3bn fund to buy stakes in existing VC funds. The fund is more than 25% larger than its previous pool targeting venture fund stakes, which had been the industry’s largest. John Avirett, a partner at StepStone, said “There is a massive amount of [investment] that is still stuck in mature venture funds . . . It is north of $1tn and growing year by year, especially if you have IPO markets that are not open. It is a massive and growing opportunity set.” Brian Borton, another partner, added: “Over the past two years, discounts have averaged in the low 30% to [a fund’s] net asset value.” Venture capital industry’s overall AUM increased from $600bn in 2014 to $3.3tn presently, according to PitchBook. About half that investment is stuck in funds raised between 2010 and 2018, which ordinarily would have been exited through IPOs or the sales of start-ups to larger technology groups. “We are generally on the other side of the correction,” said Borton, who added that deals done in 2020 and 2021 “still need to be worked through”.

Lightspeed Venture Partners is shifting further towards the secondary markets. Here’s what this change means for investors and the finance industry: Lightspeed spent $580M on secondary deals in the past 3 years. Meanwhile, fundraising by US VC firms hit a six-year low in 2023, while the value of investments slumped 30%. The takeaway? Investors are increasingly realizing that secondary transactions offset several of the shortcomings associated with traditional private market investments. In particular, secondaries allow investors to liquidate private assets before the company has a liquidity event (e.g., goes public), which is crucial when exit activities are becoming less frequent. Secondary trading volume grew more than 50% this year. It’s yet more evidence that what we’re doing at Stableton is only going to become more prevalent: Using secondaries to provide better and more innovative financial products that expand access to private markets (in our case growth equity/pre-IPO investments). Specifically, investing in a portfolio that provides immediate access to all of the Top 20 pre-IPO tech companies — always open, systematic, transparent, and zero performance fees. Currently, we are on a run-rate of 100+ secondary transactions per year. For more on how secondaries are changing the world, check out Stableton’s Navigator newsletter: https://lnkd.in/ezPbVQae #secondaries #investing #innovation #fintech #vcfunding https://lnkd.in/e8PfdS9s