The market for private company equity sales, also known as the secondary market, is a way for executives and other employees of private companies to liquidate stock in order to gain access to cash in the near term.
The secondary market began a 5-year growth surge starting in 2017. It became increasingly institutionalized, with dedicated investors executing deals that helped founders and executives at high-growth, venture-backed companies gain partial liquidity.
Later, following the initial slowdown during the pandemic’s early days, both the public and private markets exploded with activity fueled by an abundance of global government-sponsored liquidity. Some companies rushed to the IPO market to access liquidity at favorable valuations, while many others opted to leverage favorable private market valuations, allowing growth without the scrutiny of public company status. This unique combination of public and private market strength created a perfect recipe for increased secondary market transactions, recording peak issuance in 2021.
Market conditions have fluctuated in 2022, experiencing a sharp pull back due to investor concerns about inflation, rising interest rates, continued COVID-19 challenges and ongoing geopolitical conflict. The appetite for secondary transactions however rose 95% in the first quarter compared to the same period a year earlier.
It’s unclear how market volatility will impact the secondary market’s issuance, but it is important to note that many of the forces driving its previous growth remain in place.
Liquidity opportunities in a market this sophisticated require significant due diligence and have impacts across your organization. Take a look at the most important elements to consider on your path to equity.