Why Do Investors Want Secondaries

Secondaries stands for secondary sales which refers to selling privately held stock in startups to other buyers.

Investors buy secondaries instead of waiting for the next fundraise round.

By buying now rather than later the investor can lock in a lower valuation.

Investors in secondaries provide liquidity to other investors who trade off some portion of the valuation for that liquidity.

Investors in secondaries buy into proven startups and are not at risk to go under for startup failure.

As companies stay private longer, there are more secondaries available for purchase.

Employees selling their shares after a poor-performing quarter often drop the asking price providing an opportunity for investors to gain more shares at a lower valuation.

Later-stage companies come with substantial market and performance data on which to make an investment decision, unlike early-stage companies where little data is available.

Investors often purchase secondaries to gain exposure to new technology markets.

Finally, investors often use secondaries to diversify their portfolios.

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.