The secondary market in venture is booming.
Market volume tripled to $9 billion between 2022 and 2023, reaching $16 billion by the end of 2024. This growth is unsurprising given the current state of the market. Faced with major cash flow deficits, investors are seeking new paths to liquidity. However, it’s important to note that this isn’t just a cyclical trend, it’s a signal of a deeper shift. Venture’s liquidity bottleneck is a structural problem driven by three converging forces—venture’s power law model, extended exit timelines, and the explosive growth of the asset class.
Venture capital is famously characterized by its high-risk, high-reward nature. It relies on the “power law,” where a small number of investments — only about 5 percent — deliver the majority of returns. To hedge against this inherent unpredictability, firms invest capital across dozens of companies, betting that a few runaway successes will more than compensate for their losses.
For decades, this model was supported by rapid exits. In the 1990s, startups routinely went public in just a few years: Amazon IPO’d in under three years, Yahoo! in just over two, and Google in less than six. These rapid exits kept capital flowing, allowing VCs to realize returns quickly and recycle it into new deals.
But that world no longer exists. Even by 2014, the average time to IPO had stretched to over a decade, fundamentally altering venture’s liquidity cycle. Then came the venture boom. From 2019 to 2021, billions of dollars flowed into the venture market as VCs chased the next Google or Uber. Global funding reached a record-breaking $621 billion in 2021, more than doubling the prior year’s record. Global assets under management reached $3.9 trillion and the number of private, VC-backed companies in the U.S. alone ballooned to more than 40,000.
The consequences of this explosive growth became evident when rising inflation and interest rates brought public markets to a standstill in 2022. Distributions plummeted to lows not seen since the global financial crisis, leaving investors trapped in illiquid positions. Today, the average time to exit is 14 years and more than 58,000 venture-backed companies in the U.S. remain private, awaiting an IPO or acquisition that may never materialize. Even in a strong market, it would take nearly two decades to clear this backlog through traditional exits alone. Venture is facing an existential crisis — it must evolve beyond the “IPO or bust” mentality and embrace new exit strategies.
Secondaries have long been an essential liquidity strategy in private equity, with annual secondary volume representing 2 to 3 percent of net asset value. If venture secondaries scaled to the level of private equity secondaries, it would equate to over $70 billion in annual deal volume.
Much of today’s buzz focuses on LP-stakes and continuation vehicles, which are primarily designed to optimize LP portfolios and extend asset timelines. While LP-led transactions and CVs have their place, they don’t solve for a few fundamental challenges in venture. To scale and grow, startups need new sources of capital and expertise at critical inflection points. And VC funds must find solutions for portfolio bloat, bandwidth, and NAV concentration.
Enter direct venture secondaries — where VCs acquire shares from existing shareholders rather than purchasing fund interests. These transactions can play a more transformative role. They enable active VC portfolio management, provide liquidity to founders, early employees, and early investors, and help reshape company trajectories by ensuring the right investors are in place at the right time. Early-stage investors bet on moonshot ideas, providing the capital and conviction needed to get startups off the ground. But as companies mature, they often lack the expertise needed to guide startups through the complexities of scaling. Direct venture secondaries bridge this gap, bringing in investors with the sector expertise, networks, and strategic insight that companies need to reach the next stage of growth.
It takes a particular kind of investor to excel at direct venture secondaries. They must have credibility and relevance with other VCs and founders, whose approval is typically necessary for transactions. The leaders in the space will be entrepreneurial. They will proactively source top opportunities, find creative ways to do first-party diligence, and be flexible in how they build positions. Simply put, we believe that the most successful investors in direct venture secondaries will resemble venture or growth investors—without the traditional bias toward primary investing.
Near-term liquidity pressures have accelerated the rise of secondaries in venture, which are necessary to address the structural challenges that have emerged as the asset class has grown. The old playbook no longer fits the scale and complexity of today’s ecosystem. The firms that adapt — by integrating secondaries as a core strategy, rather than a last resort — will not only unlock liquidity but also help reshape venture capital and its companies for the next era of growth.
Ravi Viswanathan is the founder and managing partner at NewView Capital, a venture growth firm that invests in enterprise software and fintech companies through both secondary and primary capital.
