A Chat on the State of the US VC Secondary Market

Excerpt from a recent conversation over coffee in Palo Alto with a Fabrica Ventures’ LP:

LP: We have seen big discounts (over the last round) on the secondary late-stage VC market. What’s going on?

Fabrica Ventures: That’s correct — we are seeing 40%+ discounts on exceptional late-stage startups, many of which are already market leaders. These companies have typically raised over $300M in equity and built impressive products with strong market traction

The primary driver behind these discounts is the rise in interest rates. This triggered a sharp drop in Nasdaq valuations, effectively shutting the IPO window. As a result, well-capitalized startups are postponing IPO plans, waiting for a shift in the cycle.

Thus, the VC secondary market is just reflecting the effect of two waves in the same phase: an increase in the supply due to the IPO window closing and reduced multiples.

LP: But why would anyone sell at such steep discounts?

Fabrica Ventures: Many employees got their shares for pennies through stock options. Even with a 40% discount, they are realizing life-changing gains — which often go toward major life events like buying a house, etc.

LP: How tough has it been to get share transfers approved?

Fabrica Ventures: Much tougher than two years ago. Startups are being more selective, especially when secondary sales imply lower valuations. In one case, our lawyer had to write a comfort letter to the board confirming we had no Russian LPs. That said, it helps that we’re a Delaware fund, managed out of Palo Alto, with a track record of 40+ late-stage deals.

LP: Something that always bugged me, why VC funds that are already on the cap table do not buy those discounted shares?

Fabrica Ventures: These alpha VC funds (as we like to call them) are multi-billion-dollar funds, so small transactions simply don’t move the needle for them. Also, by regulation, VC funds with over $150M in AuM have restrictions dealing with secondaries. Since Fabrica Ventures is below that threshold, we are treated as an Exempt Reporting Advisor, which facilitates the secondary dealmaking process.

LP: And what’s your take on AI startups?

Fabrica Ventures: AI now attracts over 40% of VC funding. But you should bear in mind that every startup has embedded AI in their offerings. Most true AI startups are still early-stage and command extreme revenue multiples, often above 50x. Given our experience during the 2020–21 exuberance, we are very cautious. We focus only on clear winners like Glean. There is also a risk that foundational models will move into verticals, disrupting many vertical AI startups.

LP: I’m genuinely thrilled about the timing and approach of Fund II.

Fabrica Ventures: We are also very optimistic.