Secondary Startup Transactions Expected to Reach New Record in 2024

Investing.com -- Secondary transactions involving venture-backed startups are expected to reach record levels in 2024. Companies like OpenAI, SpaceX, and Stripe Inc. are organizing tender offers to pay their employees while investors are seeking new ways to sell shares outside of initial public offerings (IPOs).

Tender offers allow employees, former employees, and certain investors to sell their shares directly to other investors. This represents a departure from the traditional method of going public to achieve financial success in the tech sector.

NewView Capital, a firm specializing in secondary markets, expects transactions in these markets to reach $21 billion in 2024. This represents a significant increase from the previous record set in 2023. Fintech company Carta conducted 26 tender offers last quarter, the highest number since the pandemic era surge. Other companies like Fanatics Inc., Databricks Inc., and Rippling have also recently completed or are negotiating similar deals. Additionally, SoftBank Group Corp. is in talks with OpenAI to purchase $1.5 billion worth of shares from employees through a tender offer.

Older and larger startups typically hold regular share sales several times a year. For example, SpaceX and Stripe have organized multiple such deals to alleviate the pressure of going public.

This practice differs from previous years when tender offers were rare and private company share sales were usually conducted quietly and on an ad hoc basis. Larry Aschebrook, founder and managing partner of G Squared Investment Management LP, states that the negative sentiment towards selling private company shares has largely dissipated due to the prolonged wait for IPOs of some major startups.

However, those selling shares are not just employees. Many venture capitalists are also selling shares in secondary markets. Over the past 24 months, venture capitalists have executed less profitable transactions (such as acquisitions, IPOs, or company sales) than usual. In the last quarter, these transactions barely exceeded $10 billion, a sharp contrast to the at least $100 billion seen in returns each quarter in 2021. This situation has led investors to seek returns outside of primary markets.