Venture Funding Returning To Secondaries
The venture capital industry is seeing a resurgence of funding in at least one specific area: secondaries. Deals that involve existing venture investments being sold as a package to other investors have been a major source of venture capital over the past couple of years.
What Are Secondaries?
Secondaries involve the sale and purchase of assets from existing venture investments. They are typically sold as a portfolio of companies, which can give a venture investor the opportunity to realize some return from their invested capital without disrupting the existing relationship with the portfolio companies.
Why Has Venture Funding Started Flowing To Secondaries?
The venture capital industry was hit hard by the global pandemic, with many venture investors reducing their activity in the first half of 2020. But as the economy has started to recover and venture activity has increased, funding has started to flow back into secondaries.
Here’s a few reasons why secondaries have become more attractive:
- Less Risk: Secondaries provide a low risk opportunity to make money, as the existing venture investments have already been vetted and tested.
- Less Capital Required: Secondaries require less capital than investing in new venture deals, making them more accessible to investors who don’t have deep pockets.
- Faster Returns: Secondary investments can provide returns in a much shorter time frame than other venture investments, making them an attractive option for investors looking for quick returns.
Conclusion
Venture funding has started to flow back into secondaries, making them an attractive option for venture investors looking to make money without taking on too much risk. Secondaries provide a low-risk way to participate in the venture capital industry, with lower capital requirements and faster returns than other investments. In recent times, venture capital firms have been restricted in their investments. Many venture-backed startups have been forced to delay their plans for growth amidst the volatility and instability that has marked the global markets since the start of the coronavirus pandemic. However, there is one field in which venture capital activity has resumed: venture funding for secondary investments.
Secondary investments are those in which an investor purchases the assets of a venture-backed startup. This often takes the form of buying stock in the company or buying out the holdings of existing investors. This form of venture investing has become increasingly popular in recent years due to the flexibility of the deals and the chance to maximize returns.
Although venture capital activity as a whole has declined in the face of the current economic crisis, many investors still see merit in the strategic value of secondary investments and the potential to buy up undervalued assets. As a result, venture funds have started flowing back into the secondary investments market, and more investors are looking to capitalize on opportunistic deals.
Furthermore, the restructurings of existing venture deals — due to low investments and lower returns — are also providing more attractive opportunities for secondary investments. Many companies, particularly in the software and technology sectors, are looking to restructure their existing deals to raise more capital. These restructurings often result in investors, such as venture capitalists, taking additional equity or reducing the exposure of existing investors.
The increased activity in the secondary market is proving to be beneficial for those venture-backed companies looking for additional funding, as well as for investors who are looking for new opportunities. Despite the challenges of the present, venture capitalists are still feeling bullish about the opportunity that secondary investments offer. As such, they are increasing their exposure to venture-backed startups and are offering them the financing they need to continue their growth.