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Why Secondary Markets Are Eating the IPO | All-In Liquidity Secondary Markets Panel
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Secondary markets are booming, doubling IPO and acquisition volumes, but valuations are at a premium, raising concerns about retail investors being exit liquidity for massive private companies.
Key Insights
Secondary market transaction volume in 2025 is double the 2021 peak, with employee secondaries now representing 31% of all primary venture activity for companies like Anthropic, OpenAI, and SpaceX.
Companies are staying private longer because founders want to avoid the public market microscope, though this can lead to a lack of critical feedback and pressure-testing for management.
Companies like SpaceX have successfully run liquidity programs for nearly a decade, enabling employee liquidity and broader investor access through regulated Special Purpose Vehicles (SPVs).
Long-only mutual funds, currently capped at 3-7% in private investments by SEC rules, are expected to inject hundreds of billions of dollars of demand into late-stage private markets once these companies go public and their lockups expire.
Retail investors are increasingly being seen as potential exit liquidity for massive private companies, with some warning that enthusiasm can exceed reality, leading to yoloing into potentially overvalued assets.
The market currently shows technology as fully valued, suggesting that while further gains are possible, we are not at the bottom, and parabolic moves seen in 1999-2000, compared to the current market, were vastly more out of control.
Secondary markets are eclipsing IPOs and acquisitions
The secondary market for private company shares has reached unprecedented volume, doubling the levels seen at the 2021 peak. This surge is so significant that it's now competing directly with traditional exit routes like IPOs and acquisitions as a primary way for investors and employees to gain liquidity in high-growth private companies. Notably, employee secondaries alone now constitute 31% of all primary venture activity in companies such as Anthropic, OpenAI, and SpaceX. This shift is partly driven by a marketplace that has moved from trading at an 80% discount to market value a year ago to now trading at a 106% premium, indicating strong demand and a lack of available shares. The rise of Special Purpose Vehicles (SPVs), while sometimes operating in a 'wild west' with high fees, is also facilitating this market, transforming private equity into a more accessible asset class. Forge CEO Kelly Rodriques highlights that the recent acquisition by Schwab signifies the maturation of this market, positioning it as a real asset class beyond just secondary transactions, with the potential to integrate these private equities into well-managed fund products.
Why companies are delaying IPOs
A primary driver behind the boom in secondary markets is the increasing trend of companies staying private for much longer periods. Founders often prefer to avoid the intense scrutiny and pressure of public markets, seeking more freedom and the ability to focus on long-term, first-principles business building without the constant 'microscope' of quarterly earnings calls and investor demands. However, this extended private tenure can have drawbacks. As highlighted by Gavin Baker, remaining private can leave founders and employees, who are wealthy on paper, cash-poor, struggling to afford basic life necessities like homeownership, especially after many years with the company. Furthermore, the private market environment can foster a 'sycophantic' culture where investors may tell management what they want to hear to maintain access, rather than providing the rigorous, critical feedback that public market investors can offer. Mark Zuckerberg's reflection on Facebook's early challenges with the 'apps' versus 'HTML5' debate suggests that public market pressure could have led to quicker, more informed decision-making, potentially avoiding costly strategic missteps.
Democratizing private market access with SPVs
Special Purpose Vehicles (SPVs) are emerging as a key mechanism to facilitate liquidity and broader access in the private markets. While sometimes criticized for high fees and opacity, they serve a crucial role in aggregating shares and offering structured investment opportunities in late-stage private companies. Forge, for instance, is working on integrating these companies into fund products within regulated SPV structures, effectively treating them as a distinct asset class. The partnership with Schwab, bringing together 3 million investors on Forge's platform with Schwab's 46 million customers, signals a significant push towards democratizing access. The pitch to companies like SpaceX emphasizes the potential for broad-based distribution at IPO prices and preparing for a transition to public markets by engaging a vast retail investor base. This approach aims to provide liquidity for existing shareholders and VCs while also offering new investors, including potentially unaccredited ones through specific financial products like interval funds, a chance to participate in the growth of highly valued private companies.
The role of long-only funds flooding back
A significant future development expected to boost the late-stage private market is the anticipated re-entry of long-only mutual funds. These large pools of capital, which can historically allocate up to 15% of their funds to private investments according to SEC rules, have largely capped their exposure at around 3-7% due to compliance concerns. However, as major private companies eventually go public and their lock-up periods expire, these funds will be able to move those investments out of private buckets and into public ones. This transition is expected to unlock hundreds of billions of dollars in new demand for previously illiquid late-stage private assets. Such a scenario would place founders in a "cap bird seat," enabling them to better manage their companies and capital, and benefit from a substantial influx of investment capital.
Concerns over retail as 'exit liquidity' and market valuation
A prevailing concern is the potential for retail investors to become the primary source of 'exit liquidity' for enormous private companies, often at inflated valuations. While the goal is to build trust and offer durable democratization of capitalism, there's a risk that enthusiasm for these high-profile companies can outpace realistic valuations. Speakers caution against 'yoloing' into the market, especially on platforms like CNBC, where advice might encourage retail investors to commit all their capital without sufficient due diligence or understanding of market cycles. Some analysts believe technology markets are currently 'fully valued,' and while prices may continue to rise, the rapid parabolic moves seen historically, like in 1999-2000, are different from the current environment involving fundamentally strong companies like Anthropic and OpenAI. The concern is that retail participants, who may be levering up or chasing trends, could be left holding the bag during inevitable market corrections or downturns, especially when ETF products are offering leveraged exposure to specific companies.
VCs using secondaries for DPI and LP liquidity
Venture capitalists are increasingly using secondary markets to provide needed liquidity to their Limited Partners (LPs) and realize distributions (DPI). With companies staying private longer, VCs are finding that selling portions of their stakes in highly valued private companies, even at a premium, allows them to return capital to their LPs. This is a shift from the traditional VC model, which often focused solely on the buy side and exit eventualities. However, selling shares privately can involve complex negotiations with founders and create potential friction, unlike the anonymous trading accessible in public markets. This strategy allows VCs to recycle capital into new funds more efficiently, especially when they may have missed initial seed investments or earlier opportunities, and it enables them to adjust portfolio construction as market conditions evolve, ensuring they can invest in nascent opportunities while providing returns on mature assets.
The 'third way' for exits and managing private market complexity
The emergence of secondary markets represents a significant 'third way' for company exits, complementing M&A and traditional IPOs, which can sometimes freeze. However, the current secondary market can be complex and inefficient, often resembling 'ticket brokers' with disparate bids and a lack of standardized pricing. Platforms are being developed to systematize this process, allowing companies to 'list' shares akin to an exchange, providing a more orderly and efficient method for liquidity. This includes leveraging technology to connect companies with potential liquidity providers and create more efficient marketplaces. The debate also touches upon potential future innovations like tokenizing venture funds to make them more tradable, offering LPs greater flexibility to enter or exit positions based on life events or portfolio needs, although the primary demand may still be for investors wanting exposure to specific high-value companies rather than trading their fund stakes.
Identifying future opportunities in private markets
Despite current market valuations, panelists identified several promising areas for private investment. Brad Gerstner pointed to companies in 'inflection growth' within the sub-$50 billion range, though he noted the challenge of finding such companies that he doesn't already own. Gavin Baker highlighted the networking space, specifically naming Aryo and Driveets, as crucial for the increasing complexity of data centers and specialized AI chips working in concert. Kelly Rodriques mentioned the potential of agent-native platforms for sales, marketing, and customer service, with companies like Sierra and Parlo showing promise, while also citing the neobank Revolut as a strong contender in the fintech space in Europe and expanding to the US. Jason Calacanis discussed space-based infrastructure (Vast) and advanced drone delivery systems (Zipline), emphasizing how Zipline's success in cutting maternal mortality rates in Africa through medicine delivery by drone is now being replicated in the US, showcasing innovation that can create massive consumption driven by reduced delivery costs.
Mentioned in This Episode
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Common Questions
Secondary markets allow investors to buy and sell shares of private companies that are not yet publicly traded. This provides liquidity for existing shareholders and access to potentially high-growth companies for new investors.
Topics
Mentioned in this video
A company CEO, Kelly Rodriguez, discusses their role in opening up private markets.
Gavin Baker is the Managing Partner and CIO of Atrades, discussing AI ROI.
Mentioned as a prime example of a private company with significant employee secondary activity and orderly liquidity programs.
Mentioned as a company with significant employee secondary activity and as a potential investment opportunity, though concerns about SPVs are raised.
The company's historical debate between apps and HTML5 is used as an example of strategic decisions with significant consequences, and how public market pressure might have influenced them.
Mentioned as one of the smart people who initially believed in HTML5 as the future of mobile web.
Mentioned in the context of dissolving SPVs and as a real business with substantial revenue, contrasted with the dot-com bubble companies.
Forge, Kelly Rodriguez's company, was sold to Schwab, highlighting its significant presence in the financial market and its potential to impact capital access.
Mentioned as a former employer of one of the speakers and as an example of a large mutual fund company with SEC-imposed limits on private investments.
Mentioned as one of the largest pools of capital that can allocate funds to private markets under SEC rules.
Identified as a major investment firm that, like others, faces limitations on private market allocations.
Mentioned as a past investment in the fintech space.
A networking company focused on reinventing networking for specialized data centers and AI chips.
Mentioned as a tech giant that may seek to acquire agent-native companies to accelerate their AI agent capabilities.
An AI-powered logistics robotics company in Germany with significant revenue and investors, operating outside Silicon Valley.
A company building space stations, which one speaker invested in via direct cap table and SPV, seeing potential in Elon Musk's space initiatives.
A drone delivery company that initially focused on delivering medicine in Africa, significantly reducing maternal mortality, and is now expanding to America. Originally they focused on Africa to gather real-world data for autonomous systems.
Mentioned as a benchmark for what 'Uber 2.0' might look like in terms of driving down delivery costs and driving consumption.
Used as an example of a dot-com bubble company with no revenue that experienced an astronomical stock price increase followed by a collapse.
His past decision-making at Facebook regarding apps vs. HTML5 is discussed as having profound implications, with a belief that being public might have led to better outcomes.
His approach to managing SpaceX's liquidity programs and his unique receptiveness to negative feedback are discussed.
Mentioned as having launched 'USVC', an interval fund, similar to the discussed fund products.
Convinced one of the speakers to consider investing in Revolut after presenting a compelling pitch.
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