2023 Year in Review: Secondary rounds may headline deal flow at startups next year too

economictimes.indiatimes.com:

funding crunch hit Indian startups in 2023 with primary capital becoming hard to come by, there was a significant increase in secondary share sales across late-stage ventures.

Risk investors ET spoke with said the trend is likely to continue in 2024, as the focus would be on the limited number of good assets where existing investors are looking to part-sell their stake.

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Companies with adequate capital have been in discussions with investors for more secondary deals, which have contributed a significant chunk to the overall late-stage funding in 2023.

“Good exits have become hard to come by. Existing investors are selling it to new investors, even if it is happening at a valuation discount from the last time raised as long as they are good returns over and above what they initially invested with,” Mohan Kumar, founder and managing partner of growth-stage venture capital firm Avataar Ventures, told ET.

“This (secondary sale) is the only way for investors to exit even at steep discounts. In India, this is happening for the first time. In the US and Europe, these cycles have been played out before.”


Kumar said the trend is likely to continue in 2024, with early investors having to choose between staying patient for valuations to recover or exit immediately.

“Investors don’t like a downround, and for companies valuations were out of whack (in 2021). There is only so long they can wait before they hit the markets,” said Alok Goyal, partner at Stellaris