EquityZen, a secondary marketplace for private securities, has distributed a post t0utuing the secondary market for private securities during a slow period of primary issuance and funding rounds.
Of course, this is to the benefit of EquityZen as it is what the company provides, but many firms are not pursuing funding rounds if they do not have an immediate need for capital. Valuations have deflated, but the hunt for value remains.
Brianne Lynch, Head of Market Insights at EquityZen, says that a Gangbusters funding environment in 2021 was followed by a drop in 2022 – something that continues into 2023. At the same time, there is a need for liquidity and insider sales creating opportunity for investors, describing secondary markets as strong as ever.
“Private market secondaries are creating an active market for investors and shareholders in the absence of new primary funding rounds or exits. With IPO proceeds down 61% year-over-year and lingering macroeconomic uncertainties, many existing shareholders cannot wait for the IPO market to reopen to achieve liquidity and they are coming to the private secondary market for solutions. Some of the shareholders we work with at EquityZen are institutional investment managers who need to return capital to their limited partners. There are two reasons for this. First, they need to realize returns as they aim to raise capital for future funds from new investors. This is especially true for emerging managers. Secondly, their existing limited partners are reliant on returned capital to reinvest in new vintages where they have committed capital. The secondary market addresses both of these needs allowing these investment managers to lock in paper gains and return capital to limited partners.”
Brianne says these dynamics have created an “attractive entry point” with discounts in play for a market that is no longer out of reach.