Trailing in SV

On June 14, 2024, the Financial Times published an article titled “Silicon Valley’s Lightspeed shifts focus to secondary markets – A sign of how traditional investment models are under threat by a challenging VC environment.”

Lightspeed Venture Partners, one of the most traditional, active, and largest venture capital firms in SV, manages approximately $25B in assets.

Now, Lightspeed is seeking SEC approval to allocate more than 20% of its funds (the regulatory cap) to trading in secondary markets.

Mainly due to rising interest rates, startup valuations have significantly declined. Lightspeed’s chief business officer noted, “Given market dislocation, we were able to purchase many compelling new opportunities at significant discounts of 45% to 50% compared to the last funding round.”

As part of its shift to secondaries, Lightspeed hired a Goldman Sachs banker in February to lead the effort and established a data platform to monitor secondary markets and identify discreet opportunities to buy private company stock. “The VC secondary market is growing dramatically because the need is there.” Indeed, by some estimates, it has grown 50% year-over-year for the period ending in May.

Conclusion

Indeed, in today’s market, it often makes more sense to invest in the secondary market at a significant discount rather than participating in a primary round (Series C and beyond).

For the last four years, Fabrica Ventures has been uncovering discreet opportunities in the VC secondary market.

It is gratifying to see that the big guys are now following the same trail.