60% Of Founders See Increase In Investor Interest For Secondary Deals

The year 2024 witnessed a wave of secondary deals in the Indian startup ecosystem as VCs offloaded stakes via such deals in multiple startups like Capillary, ixigo, Urban Company, Porter, Pocket FM, among others. 

In a secondary deal, existing investors sell their shares to new buyers and the capital doesn’t go to the company’s coffers.

Amid the increase in secondary transactions, startup founders also saw a jump in the interest in secondary deals. As per ‘The Pulse Of Tech: Inc42’s Annual Founder Survey’, 60% of the 100+ founders revealed that investor interest in secondary transactions “increased” in 2024. 

While 35% of the surveyed founders witnessed a “moderate” increase in interest, 25% saw “significant increase” in interest for secondary transactions. 

This indicates that VC and PE firms are keen on backing well-established new-age tech companies and don’t mind entering the cap table later in the game.

It is pertinent to note that secondary investors are increasingly eyeing stakes in IPO-bound new-age tech companies with a view to cash in on the IPO momentum in the Indian equities market. Last year, 13 new-age tech companies went public, with almost all of them listing at a premium over their IPO price.

As a result, there have been a number of secondary deals in startups looking to go public over the next couple of years. For instance, B2B marketplace unicorn OfBusiness saw a secondary transaction of about $100 Mn to $120 Mn in October 2024, with early investor Zodius Capital exiting the company. According to reports, the VC firm made returns of $100 Mn on its $8 Mn investment in OfBusiness.

In March 2024, Tiger Global and Peak XV Partners were said to be looking to snap up shares from existing investors in ecommerce unicorn Meesho via a secondary deal worth $200 Mn. 

Why The Secondary Deal Rush?

But, why are founders veering more towards secondary deals? Most of the founders (37%) surveyed by Inc42 see secondary transactions as a key route to offer liquidity to early backers. 

Another 28% of the surveyed entrepreneurs see secondary transactions as a source for creating wealth for their employees, signalling that Indian startups are keen to reward their team members through share ownership. 

A case in point being hyperlocal services startup Urban Company, which raised INR 400 Cr from Dharana Capital through a secondary share sale in July 2024. The transaction saw employees and existing shareholders divesting their stakes in the biggest ESOP liquidity programme in the company’s history. 

Meanwhile, 26% of the surveyed founders cited “strategic investor entry” as the reason for considering secondary deals and 16% said they see such transactions as a way to “restructure captable”.

Overall, the Indian startup ecosystem saw over a dozen secondary deals in the first half of this year alone. However, many of these deals were priced at a discount, making them attractive to secondary investors. For instance, the above-mentioned Meesho secondary deal was said to be in the works at a 20% valuation cut. 

The surge in secondary deals has also resulted in new funds being launched with a focus on secondary transactions. In 2024, former Peak XV Partners managing director Piyush Gupta set up a secondary-focussed VC firm Kenro Capital, which will look to capitalise on the growing interest in growth stage secondary transactions in India and South East Asia. 

Asset management company 360 ONE Asset also launched an INR 4,000 Cr Special Opportunities Fund-12 to invest in late-stage startups.