Secondary transactions involving venture-backed startups are expected to reach a record high in 2024. Companies such as OpenAI, SpaceX and Stripe Inc. are holding takeover bids to pay employees, while investors explore new ways to sell their stakes beyond outside of initial public offerings (IPOs).
Tender offers allow employees, former employees and some investors to sell their shares directly to other investors, moving away from the traditional method of going public to achieve financial success in the tech sector.
NewView Capital, a firm specializing in secondary markets, expects transactions in these markets to reach $21 billion in 2024, a significant increase from the previous high in 2023. Financial technology firm Carta conducted 26 takeover bids in the last quarter, marking the highest number since the outbreak of the pandemic. Other companies, such as Fanatics Inc., Databricks Inc. and Rippling, have recently finalized or are discussing similar deals. Additionally, SoftBank Group Corp. is in talks with OpenAI to buy $1.5 billion worth of shares from employees through a tender offer.
Larger, more established startups often hold stock sales regularly, typically a few times a year. SpaceX and Stripe, for example, have staged more such deals to relieve employee pressure to go public.
This practice marks a change from previous years, when takeover bids were infrequent and sales of shares of private companies were often made discreetly and on an ad hoc basis. Larry Aschebrook, founder and managing partner of G Squared Investment Management LP, says the negative attitude toward selling shares of private companies has largely disappeared because of the long wait for some major startup IPOs.
However, employees aren’t the only ones selling stakes. Many venture capitalists are also selling shares on secondary markets. Over the past 24 months, venture capitalists have seen fewer profitable transactions, such as acquisitions, IPOs or buyouts, than usual. Last quarter, these transactions barely topped $10 billion, a stark contrast to 2021, when each quarter saw at least $100 billion in returns. This has led to greater urgency for investors to seek returns outside of primary markets.
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