Should you requested a bunch of VCs on the finish of 2023 if the IPO market would lastly open once more in 2024, most of them would have stated sure. We all know as a result of For Millionaires surveyed greater than 40 of them in December and that’s what they stated.

But, there are two weeks left in Q1, nonetheless no accomplished main IPOs, and only a few within the works. Reddit is the one big-time IPO far sufficient alongside to be priced. In any other case, there may be simply hypothesis on who would possibly go public, with only a few public SEC paperwork. For example, there’s Shein, which reportedly filed a confidential S-1 final fall, or automotive rental market Turo, which remains to be ready on the sidelines after submitting its preliminary S-1 in 2022.

It’s unclear if the markets will open once more later this yr even when Reddit’s providing is successful. Secondary buyers just lately instructed For Millionaires that whereas Reddit may drum up some further exercise, it gained’t possible be the opening of the IPO floodgates buyers had been hoping for. Plus, a few of largest names that had been anticipated to go public this yr — Databricks, Stripe and Plaid — have both straight stated they gained’t IPO in 2024 or have held funding occasions that indicate they aren’t going out anytime quickly.

Whereas a variety of buyers need IPOs to open again up in 2024, the market circumstances aren’t ultimate. Rates of interest are nonetheless excessive, making a living costly and pulling buyers away from fairness into bonds; valuations are nonetheless depressed from their highs of 2021 with later-stage enterprise buyers taking a look at gaining little — and even shedding cash — if their startups had been to go public now.

However the prospects of getting liquidity in 2024 are usually not all doom and gloom if IPOs don’t return. Buyers can, and have more and more been turning to secondary marketplaces the place non-public firms can authorize their shareholders to promote a restricted quantity of inventory to authorized buyers. This isn’t a public sale. Stockholders can’t promote each time to whomever. However in 2024, it’s turn into an usually preferable substitute.

Transactions on secondaries rose from $35 billion in 2017 to $105 billion in 2021 and are anticipated to whole $138 billion for 2023 when year-end tallies can be found, according to data from Business Ventures.

Secondary markets — the most effective of each worlds

Alan Vaksman, founding accomplice at Launchbay Capital, stated that the secondaries market permits firms to get the most effective of each worlds. Startups are capable of appease their buyers on the lookout for liquidity by permitting them to promote all or a few of their firm’s fairness, with out having to carry a untimely exit occasion.

“It releases that stress for liquidity for a number of the buyers,” Vaksman stated. “You created liquidity for those you needed to, you didn’t upset your late-stage buyers and you’re taking your time to develop. The secondary market permits for that now.”

Stripe’s latest secondary sale is a transparent instance of this. In February, Stripe introduced it had come to an settlement with its buyers to supply liquidity to its workers in a sale that valued the corporate at $65 billion. Whereas that’s down from the $95 billion valuation the corporate garnered in 2021, it’s an enormous bump from their final main spherical that valued the fintech at $50 billion final yr.

This secondary sale reveals that buyers are keen to maintain constructing Stripe’s valuation again up towards its 2021 excessive and that it’s simple for workers to get money for a few of their inventory previous to an IPO occasion. So why would Stripe wish to go public in 2024 earlier than its valuation totally recovered?

Secondary markets have at all times been geared toward workers. What’s newer is that VC funds and LPs have begun to lean on them. Nate Leung, a accomplice at Sapphire Companions, stated that corporations can select to dump some shares to release some money, whereas preserving a few of their stake. However corporations can even use them to purchase inventory and enhance their stakes in promising startups.

Leung stated that Sapphire deployed roughly $200 million into the secondary market in 2023 and expects to deploy the identical if no more into secondary stakes in 2024.

Shasta Ventures reportedly employed Jefferies Monetary for a “strip sale” Bloomberg reported, that means it was looking for secondary consumers for a number of its portfolio holdings. The report didn’t embody which startups it’s seeking to promote however its portfolio consists of firms like Canva, which Shasta backed in its 2013 seed spherical and is now value an estimated $40 billion in keeping with secondary information platform Caplight.

The IPO market gained’t keep frozen perpetually. However given the maturation of the secondary market, it doesn’t must thaw earlier than the market is absolutely prepared.

The secondary market “is taking part in an enormous function,” Leung stated concerning firms ready to go public. “You’ll be able to obtain plenty of your authentic objectives for each worker and investor liquidity, and the LPs, by totally promoting or structuring secondaries offers. [LPs] are usually not pressuring the GPs to push out their property, which reduces the demand for the general public market.”

This text has been up to date to mirror that Nate Leung works from Sapphire Companions, the LP arm of Sapphire Ventures. The quantity the agency has invested was additionally up to date.