We are increasingly seeing, in our day to day work, VCs exiting through secondary sales, either as an independent transaction, or as part of a capital raising round. This seems to be part of a broader trend, and certainly the case in Silicon Valley.

In the not-so-distant past, there was a stigma in Silicon Valley if a venture firm sold a lot of shares in a portfolio company before an initial public offering. The secondaries — where backers of closely held companies sell stakes to others — were often seen as a sign that the firm didn’t believe in the startup’s continued growth.

Yet after three years of an almost dormant tech IPO market, alongside challenges to mergers and acquisitions, secondaries are no longer viewed unfavourably. Previously the domain of early stage angel investors, founders, and employees (current or past), private stock sales have become the new exit for VCs, with secondary markets set to reach record levels this year.

“The stigma is evaporating,” said Ravi Viswanathan, founder and managing partner at NewView Capital. He said that when he first started the secondaries-focused firm six years ago, the perception was different. When firms sold shares, people would ask, “Are you giving up on the company, what’s happening?” He said now it’s a “natural evolution” in the marketplace, especially since venture capitalists often don’t have the luxury of waiting 15 years for an IPO, because of pressure from their own investors.

Large-scale company secondary transactions known as tender offers are not new, but the frequency has been greater. In recent months we’ve seen tender offer talks for companies like SpaceX, Stripe, Databricks, Wiz and Fanatics. OpenAI completed its own deal earlier this year.

Some of the hottest names in Silicon Valley had already been taking advantage of the opportunity to provide employees and other shareholders liquidity for several years, but now we’re “seeing a big pickup” with the smaller unicorns, startups that have topped the $1 billion valuation, said Greg Martin, co-founder of private trading platform Rainmaker Securities. “Until an exit environment emerges,” in which it’s easier and more beneficial to go to the public markets or negotiate an acquisition, he expects the venture capitalists to continue to cash out.

Based on an article published by Bloomberg UK