As the venture capital landscape grapples with a downturn marked by record down rounds and liquidity struggles, Europe’s secondary market for venture capital (VC) investments is quietly growing. While secondary markets in the U.S. have matured with major funds like StepStone Group closing a $3.3 billion fund in 2023, Europe’s market remains in its early stages but has shown notable growth. In 2023, European funds accounted for 24% of global secondary market volume, up from 18% the previous year, according to Jefferies, with North American funds still commanding 68% of the total.
What is the VC Secondary Market?
The VC secondary market involves the buying and selling of stakes in startups by existing shareholders, such as investors or employees, who wish to realize a cash return before the company undergoes an acquisition or exits via IPO. These transactions provide liquidity to shareholders while offering investors a chance to acquire stakes in promising companies at discounted rates.
Europe’s Growth in VC Secondaries
One of the key factors contributing to the growth of the European secondary market is the mismatch between startup valuations and market realities, compounded by the inability of many VC-backed firms to raise follow-up funds. As a result, the secondary market has become a way for investors to buy smaller stakes in companies that might otherwise be difficult to access.
Sweden’s SV Ventures, for example, has shifted from advising on primary transactions to focusing on secondary deals, which offer more predictable pricing and fewer valuation disputes. Over the last two years, SV Ventures has generated significant revenue through secondary transactions and plans to launch a dedicated VC secondary fund.
“We’re seeing more agreement between buyers and sellers in the secondary market,” says Andreas Hultin, a director at SV Ventures. “There are not many secondary-only funds in Sweden or the Nordic region, so it’s good for the ecosystem to have more players.”
Smaller Players, Big Returns
In the relatively untapped European secondary market, smaller VC secondary funds are beginning to gain traction. Estonia-based Siena Secondary Fund, founded in 2021, focuses on acquiring small stakes in Nordic and Baltic startups. With limited competition in the region, Siena has been able to make significant investments in high-growth companies. One of its notable investments is in Oura, a health tracking ring maker. Siena purchased a small secondary stake in Oura, and since then, the company’s valuation has surged by over 100%, reaching $5 billion in its most recent funding round.
Rando Rannus, a general partner at Siena, highlights that while the fund’s positions are typically small, they offer strong returns. “We usually get stakes with a discount, and even small positions can generate good markups,” he says.
Siena’s investors—predominantly Nordic family offices, funds-of-funds, and high-net-worth individuals—would otherwise lack the means to directly invest in these high-growth companies. By pooling their resources, Siena’s LPs can collectively contribute up to $5 million per investment, which is too small for larger VC firms like Sequoia to consider.
Future of European VC Secondaries
While the European VC secondary market is still maturing, it is becoming an increasingly important sector for investors seeking exposure to high-growth startups in their later stages. As the market grows, competition is expected to increase, especially with more specialized funds entering the space. Nevertheless, the relative scarcity of secondary funds in Europe gives early movers like Siena and SV Ventures a unique opportunity to capitalize on undervalued assets and secure high returns.
The evolution of Europe’s VC secondary market is still in its early stages, but with strong demand for liquidity and an increasingly sophisticated investor base, it presents a compelling opportunity for both large and small investors to capitalize on startups at discounted valuations. As this market matures, it is likely to become a key component of the European venture capital landscape.
For more insights, visit PitchBook’s full report on European secondary investments here. | Small bets, big rewards in European secondaries – PitchBook
