Secondary startup transactions set to reach new high in 2024

Investing.com -- Secondary transactions involving venture-backed startups are projected to reach a record high in 2024. Companies such as OpenAI, SpaceX, and Stripe Inc. are organizing tender offers to pay employees, while investors explore new ways to sell stakes outside of initial public offerings (IPOs).

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

NewView Capital, a firm specializing in secondary markets, expects transactions in these markets to reach $21 billion in 2024, a significant increase from the previous high in 2023. Financial technology firm Carta conducted 26 tender offers last quarter, marking the highest number since the pandemic boom. Other companies, such as Fanatics Inc., Databricks Inc., and Rippling, have recently finalized or are discussing similar deals. Furthermore, SoftBank (TYO:9984 ) Group Corp. is in talks with OpenAI about purchasing $1.5 billion in shares from employees through a tender offer.

Older and larger startups often arrange share sales regularly, typically a few times a year. SpaceX and Stripe, for example, have organized multiple such deals to alleviate pressure from employees to go public.

This practice marks a shift from previous years when tender offers were infrequent and private-company share sales were often done quietly and on an ad-hoc basis. Larry Aschebrook, founder and managing partner of G Squared Investment Management LP, says the negative attitude towards selling private company stocks has largely disappeared due to the prolonged wait for some major startup IPOs.

However, employees aren't the only ones selling stakes. Many venture capitalists are also selling shares on the secondary markets. Over the last 24 months, venture capitalists have experienced fewer profitable transactions, such as acquisitions, IPOs, or buyouts, than usual. In the last quarter, these transactions barely exceeded $10 billion, a stark contrast to 2021, when each quarter saw at least $100 billion in returns. This has led to an increased urgency for investors to seek returns outside the primary markets.

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Source: Investing.com