In the last decade, the Indian startup ecosystem has evolved to adapt to almost every aspect of investments and exit strategies. As per a survey conducted by Inc42, as a part of its Indian Tech Startup Funding Report Q3 2025, nearly 41% of India investors prefer secondary deals as a route to exit their portfolio companies. 

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The other exit strategies such as IPO, buyouts, and acquisitions saw relatively less interest from investors who participated in the survey. The state of exits indicates the growing need among VCs to find exits from their portfolio, especially among startups that don’t have a clear IPO path. 

Several venture capital firms including White Whale Venture, PixelSky Capital and Neo Group have launched secondary-focussed funds to offer exits to VCs on the cap table and allow limited partners (LPs) to diversify. 

While secondary exits have always been available, the market is now maturing alongside the Indian startup ecosystem. With several homegrown funds now nearing the end of their life cycle, VCs are liable to give the capital back to their investors. 

There’s, of course, the question of discounted valuations amid the rush for secondaries. 

“The first set of homegrown funds started in 2014-15. Now they have come to a full life cycle. Both Indian as well as global LPs have started to ask GPs or fund managers about liquidity timelines,” Eximius Ventures founder Pearl Agarwal said.

Talking about liquidity, investors which participated in the similar survey last year (Q3 2024) ; 92% of them agreed that the rise of secondary share transactions is increasing liquidity for early investors, founders and employees in Indian startups.

The Liquidity Pressure On VCs

Typically, investors watch out for IPOs to cash in on their bets, but this particular route has several hurdles such as compliance complications and lock-in periods which impact the internal rate of return (IRR). 

Eximius’ Agarwal further explained that IPOs take longer and by the time a company reaches that stage, VC stake gets diluted due to multiple factors such as new funding rounds and  employee stock option plans. Even if the return is higher through an IPO in the long run, the IRR is impacted and this is critical for the fund to manage as it looks to close and return the capital to LPs. 

A company hitting bourses is a complex process especially currently with several listings competing for the investor money. With compliance burden growing in the IPO process, investors look for an easier way out which also offers faster liquidity — which indeed is something secondary deals offer. 

While IPOs take time, acquisitions are more riskier and come at severely discounted valuations. 

“An acquisition is a different ballgame altogether because for that the company needs all stakeholders to be on the same page. You don’t hear of too many scaled up companies going down that route because there’s a clear realisation that if we can scale these companies and take them to the public markets, the IRR will be better for everyone involved,” White Whale Venture founder Shapath Parikh said. 

Maturity Leads To Secondary Bets

For the investors focussed on early stage startups, the growth stage is an attractive time to make a secondary exit for better returns and growing investor interest. But it’s not always possible to get the best returns when investors exit at this stage. 

As per Inc42’s Q3 2025 report, more than $1 Bn was infused in late-stage startups during the quarter under review. This was followed by more than $751 Mn deployed in growth stage startups. So at which stage are secondaries happening in the ecosystem? 

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At the early stage, a portfolio company needs to demonstrate a steep growth trajectory that contributes to investor frenzy and makes existing shares more attractive. This was more regularly seen around 2021 when investors were pouring in capital during the zero interest rate policy (ZIRP) regime. 

On the other hand, late stage-focussed investors, that have longer exit horizons, tend to stick around longer and make an exit when the company is close to hitting the public market. More and more late stage financial institutions are buying into IPO-bound companies — the likes of Zepto, Meesho, Groww, BharatPe and others are examples of companies where investors have come in late in the hope of building up a pre-IPO position. 

This dichotomy has created a gap — the need for funds that bridge the late stage and early stage needs — and this best explains the increase in secondary funds in India recently. With their sharp focus on secondary deals, such funds are allowing early investors to find exits and have become co-investors for late-stage investors. 

Instead of looking at secondaries as a diversification point, new fund managers see secondaries as a competitive edge and a niche. And as the Indian startup ecosystem matures and more and more companies build up towards IPOs, secondaries are only expected to rise. 

The Route To Secondaries

With the Indian startup ecosystem maturing and going through a new transformation in terms of maturity, venture capital firms are also pacing up to make the most out of this situation. The advent of secondary-focussed funds is one clear sign.

Behind the scenes, launching a secondary fund also comes with its shares of pros and strategies. 

The VCs launching secondary funds can also lock in liquidity by allowing its existing LPs to sell their stake to the fund and move the capital to another fund. For example, when a large multi-fund brand launches a secondary fund, it can give exit to their existing LPs and lock in the liquidity by shifting their capital across funds. 

“For VCs, secondary funds are also a good way to give exits to LPs that might have come into one fund and move that investment into the second fund. How does that benefit them is liquidity is locked in. Second, if they like the asset a lot they don’t have to prematurely exit and hold it until IPO,” Agarwal added.

On the strategy front, there are three prominent routes: 

• Direct Secondary – Where investors are going to GPs and purchasing stake in individual brands to build their own portfolio
• Portfolio Approach – Buying the remaining portfolio assets from a GP, specially when a fund nears the end of its life cycle. 
• ESOP Monetisation – Buying out employee stock option (ESOP) positions, typically in late-stage startups. For instance, investment firm Ironclad Asset Management recently launched INR 200 Cr ESOP-focused fund to provide liquidity to employees in the Indian startup ecosystem. 

While the increase in the number of secondary funds is natural due to India’s maturing market, the space is also becoming more organised. 

“Now there is a dedicated pool of fund managers who are facilitating secondary transactions  in a much more organised fashion. When investors don’t go to these companies directly, and come through secondary fund channels, they benefit from another layer of diligence which keeps factors like valuation in check,” Parikh added.

[Edited by: Nikhil Subramaniam]