The Rise of Secondaries: Unlocking Liquidity in Private Equity and Venture Capital

What are secondaries (and why are they so popular)? 

Secondaries have been surging in popularity. From private equity to venture capital in more recent years, secondaries have become a widely adopted strategy for managing liquidity, a trend that’s expected to persist given extended exit timelines and a sluggish IPO market. In the broadest terms, a “secondary” refers to the sale and purchase of existing ownership interests in private market assets, such as private company shares or fund interests, from current holders.  

Secondaries can take a number of forms, with those at the fund-level involving Limited Partners (or “LPs”) selling their interests in a PE or VC fund, or where General Partners of Funds transfer the entitre ownership interest in underlying portfolio companies from an existing fund to a new fund, sometimes managed by the same manager.  

In the VC world, these types of secondaries have gained in popularity due largely to the sluggish M&A and IPO market. This structure enables VC funds to manage differing LP interests within a fund amid ongoing market challenges, providing an opportunity for certain LPs to cash out and bolster their liquidity, while allowing the GP to retain and further develop the assets. Committed investors can roll their exposure into the continuation fund.  

A different type of secondary is also continuing to gain traction: direct sales from existing shareholders, usually the founder(s), employees or early investors, who wish to cash out (a portion) of their holdings as the Company increases in value and while there is still a great deal of demand in the Company. Traditionally, the way founders, employees and investors would get liquidity would be through an exit (either via sale or IPO). However, given the dearth of M&A and IPOs, secondaries have become a popular way to achieve liquidity. These direct secondaries often form part of a later-stage funding round (Series B and above) or may in some instances (and as we have seen with Revolut) be a stand-alone secondary offering, depending on the stage in the company’s lifecycle and capital needs. Secondaries of this kind have become so prevalent that the British Venture Capital Association has considered adding a template share purchase agreement to its roster of precedents. In the same vein, employee share option plans for early-stage companies now frequently provide for the exercise of options on a secondary transaction, as well as on a traditional exit.  

Why do a secondary? 

Secondaries at the shareholder level are notoriously difficult to track, with most going un-announced. The two most prominent examples of recent secondaries are Stripe’s tender offer giving current and former employees the opportunity to access liquidity, which was announced in February of this year, and the Revolut secondary first reported earlier this summer, which allowed for employees and existing investors to sell their shares.   

Both Revolut’s secondary share sale and Stripe’s tender offer are expected to be a mixture of sale and purchase to new and existing investors, with an element of share buy-back by the companies themselves.

With increasingly longer timelines to ultimate exit, secondaries offer a way of providing employees with liquidity and enabling new investors to access equity in top companies, or existing investors to increase their stakes, without diluting the existing shareholders. Other drivers for secondaries include:  

• Flexibility: Secondaries can also be used as a liquidity tool for funding rounds which are oversubscribed, enabling more investors to participate in a round without excessive dilution. This has typically been more poignant for later stage funding rounds; however, current market conditions are seeing a rise in secondaries in early stage funding rounds as well. 
• Competition: VCs are increasingly building secondaries for founders and employees into their term sheets to bolster their attractiveness and win deals. This is particularly the case for in-demand sectors, such as AI, fintech and SaaS businesses.  
• Motivation: Early investors, employees and especially founders who have been invested in the company since its inception may be tempted by sub-optimal early exit opportunities. Providing liquidity bridges that gap and keeps the motivation and focus on growth and long-term commitment for that bigger exit investors ultimately seek.  
• Exit buzz: In the run up to an IPO or sale, investors will want the opportunity to invest while most existing shareholders will want to avoid further dilution – a win-win for investors and existing shareholders looking for an interim cash-out option.  

Access 

One of the most difficult aspects of direct Secondaries is gaining access, especially for the more sought after companies.  In many cases, the process is carefully managed by the Company’s board of directors together with an investment bank.  For any chance of gaining access, a secondary investor is advised to be close to both, to build trust and ensure the investor is invited to participate.  

Some Investors (such as Giano Capital led by European serial entrepreneurs and investors, Alberto Chalon and Andreas Weile out of Monaco) are specifically targeting this type of asset class, and have successfully participated in Revolut’s two most recent secondaries, as well as secondaries for Marshmallow, Zopa, Get Your Guide and several others. 

What’s next?  

The Financial Conduct Authority (‘FCA’) published the regulations for operating a Private Intermitted Securities and Capital Exchange System (‘PISCES’) in June 2025. PISCES is a new type of stock market platform designed to facilitate secondary transactions in private company shares through occasional, time-limited trading windows. Within this framework, private companies can determine the timing and terms of trading events, including setting trading price limits and specifying eligible buyers and sellers. The London Stock Exchange is the first PISCES platform operator to be approved by the FCA, with more operators expected to gain approval later this year.    

The FCA believes PICES will ‘allow private companies to access a broader range of investors, supporting investment in growth companies and boosting the competitiveness of UK markets’. This new market platform is set to operate in a ‘sandbox’ mode for the next five years before its design is finalised in 2030, with the first shares expected to be traded later in 2025. 

PISCES operators can also set their own rules about which companies are allowed to use their platform. Under the FCA rules, public and private limited companies based anywhere can trade their shares on the platform, as long as they have not been publicly traded. Companies must also comply with the disclosure requirements (as set both by the FCA and the PISCES platform operator) and any additional eligibility requirements set by the PISCES operator.  

The FCA has sought to adopt a more proportionate approach to disclosure than required for a traditional public listing, focusing instead on the type of information typically required during due diligence for private, bilateral market transactions. Additional information may be required under the PISCES operators’ rules.  

Whether this new regime for secondaries will be a successful alternative to the current market practice will be measured by the trading volumes in the years to come.  In the meantime, if you are an investor interested in direct secondaries, then you will need to flex your network to have any chance of gaining access.