The European venture secondaries market is expected to grow significantly as a lack of attractive exit options has increased the need for liquidity.
Increased volatility in the public markets for tech companies has severely reduced appetite for VC-backed exits in Europe. As of June 15, some 463 deals were completed this year worth an aggregate €16.9 billion (about $16.96 million), according to PitchBook data. That shows decreases of 61.4% in deal count and 87.6% in total deal value from the heights of 2021.
As investors and companies prepare for a cold winter on the exit front, Europe's nascent secondaries market is heating up as startup investors and limited partners seek to cash out some assets.
"Current market conditions, which are characterized by higher interest rates and a rotation away from high-growth stocks, are leading to an [exit] liquidity crunch," said Dany Bidar, principal at Octopus Ventures. "If those conditions persist, you'd expect to see increased pressure for liquidity within the VC asset class, making secondaries an ever-more-important liquidity solution."
Global venture secondaries volume is estimated to reach $138 billion by 2023, according to data from Industry Ventures, but Europe has been slower than other regions to open up to these transactions.
This is due in part to a much smaller primary market, but the more complicated nature of venture secondaries deals also contributes. Many continental European jurisdictions restrict share transfers, and the inclusion of terms for the right of first refusal—allowing existing shareholders the opportunity to buy stakes before external buyers—can make these deals more costly and time-consuming.
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