The Evolution of Venture Capital’s Secondary Market

Secondary Market Primer

Before diving into the history of private secondaries, it’s important to understand what a secondary market actually is. At its core, a secondary market is any market where existing assets are bought and sold, rather than newly created ones. The stock market is the most well-known example. When an investor buys shares of a publicly traded company like Apple, they’re not buying them directly from Apple. They’re buying them from another investor who already owns those shares. That’s a secondary transaction.

The same concept applies to real estate. When a newly built home is sold for the first time, that’s a primary market transaction. But once that home is resold years later, it becomes part of the secondary market.

Private markets work in a similar way. When a venture capital firm invests in a startup’s Series A or Series B round, that’s a primary transaction. The company issues new shares, and the capital raised goes directly into its operations. But when that VC later sells its stake in the company to another investor, that’s a secondary transaction. No new shares are created, and the capital goes to the seller, not the company. The same dynamic applies when early employees sell their equity in a private company before an IPO.

These types of transactions—where existing ownership stakes in venture-backed companies or private investment funds are bought and sold—are often referred to as secondaries. Over the past few decades, the secondaries market has grown from a niche tool used by distressed sellers into a major source of liquidity in venture capital, private equity, and other illiquid asset classes. Understanding how it got there requires looking at its history.

The Early Days: Secondaries as a Niche Market (1980s–2008)

In the 1980s and 1990s, the secondary market for venture capital was a niche and largely overlooked corner of finance. Venture capital itself was still a relatively small industry, and early-stage investors generally expected to hold their stakes until an IPO or acquisition. There were few, if any, options for early liquidity.

The first dedicated secondary fund was launched in 1982 by VCFA, with just $6 million in assets. Over the next two decades, firms like Coller Capital, HarbourVest, Landmark Partners, and Lexington Partners began raising their own secondary-focused funds, but they remained small and specialized. Transactions were typically private, bilateral deals negotiated between parties, with no formal marketplace to facilitate exchanges.

For most of this period, secondaries were viewed as a tool for distressed sellers—financial institutions offloading underperforming portfolios or LPs needing to exit early. These transactions often came with significant discounts, as buyers had little pricing transparency and assumed higher risks.

By the early 2000s, transaction volume was increasing, with major financial institutions beginning to offload venture stakes. Deals like RBS’s sale of the NatWest portfolio and UBS’s secondary transaction with HarbourVest signaled that the market was slowly expanding.

Still, by 2008, total secondary transaction volume had only reached $20 billion, and the market remained highly inefficient. There was little standardization in pricing, transactions were slow, and most sales were driven by necessity rather than strategic portfolio management.

That all changed with the financial crisis of 2008.

The 2008 Financial Crisis: A Turning Point for Secondaries

The 2008 financial crisis was a watershed moment for the venture capital secondary market. Before the crisis, secondary transactions were largely limited to distressed sales and occasional portfolio rebalancing by institutional investors. That changed as the financial system unraveled, triggering liquidity concerns across venture capital and private equity.

As public markets crashed, institutional investors—including pension funds, university endowments, and family offices—found themselves overexposed to private investments. This was the result of the denominator effect—a phenomenon where falling public asset values made illiquid venture and private equity holdings a disproportionately large share of their portfolios. Many of these investors needed to reduce their exposure and raise cash, but venture investments were locked in long-term fund commitments.

With IPOs grinding to a halt and venture-backed companies delaying exits, secondary markets became one of the only ways for investors to gain liquidity. Large financial institutions like Citigroup, ABN AMRO, and affiliates of AIG began offloading portfolios of private investments, sometimes at steep discounts.

At the same time, venture capital funds themselves faced liquidity pressure. Many had overcommitted capital, assuming they would raise follow-on funds or see distributions from previous investments. But in a frozen market, cash reserves dried up, and secondary sales became a critical tool for stabilizing portfolios.

Pricing in the secondary market fell dramatically as supply far outstripped demand. Investors willing to step in—often dedicated secondary funds—could acquire stakes in high-quality venture-backed companies at unprecedented discounts. Buyers became more selective, focusing on the strongest assets while leaving weaker portfolios unsold.

By 2010, as public markets began to recover, the secondary market had cemented itself as a core liquidity option for venture capital investors. No longer just a niche tool for distressed sellers, secondaries were increasingly recognized as a strategic way to manage risk, rebalance portfolios, and optimize fund performance.

What had once been a backwater of private investing was now on the path to becoming a critical part of venture capital’s financial ecosystem.

Mainstream Adoption: Secondaries as a Portfolio Tool (2010–2016)

By 2010, the secondary market had moved beyond its origins as a last-resort liquidity option. What had been a relatively small, illiquid market was now gaining traction as a strategic tool for venture capital firms, limited partners (LPs), and institutional investors looking to actively manage their portfolios.

A key shift during this period was the increasing institutionalization of secondaries. More dedicated secondary funds entered the market, and transaction volume surged as investors became more comfortable using secondaries as a proactive portfolio management tool rather than a reactive one.

For LPs, selling stakes in venture capital funds or individual company holdings became a way to rebalance portfolios, manage risk, and gain liquidity without waiting for an IPO or acquisition. The old stigma—that secondaries were only for distressed sellers—began to fade. Instead of selling at deep discounts, investors could now trade high-quality venture assets at more favorable terms.

On the buy side, an increasing number of funds specialized in acquiring secondaries. Firms like Coller Capital, Lexington Partners, and HarbourVest raised record-sized funds dedicated to secondaries, bringing more capital and liquidity to the market. This professionalization helped stabilize pricing and made transactions more predictable.

At the same time, secondaries were expanding beyond simple LP interest transfers. GP-led secondaries, where fund managers themselves initiated secondary transactions, started to emerge. These deals allowed venture firms to extend the life of their funds, provide liquidity to existing investors, and continue managing promising assets.

By 2016, annual secondary transaction volume had grown to nearly $40 billion, and the market had fully transitioned from an obscure financial niche into a well-established segment of venture capital. The groundwork had been laid for even greater expansion in the years ahead.

The Expansion Era: Growth Beyond Private Equity (2017–2019)

By 2017, secondaries were no longer just a risk management tool for institutional investors. They had become an essential part of the broader venture capital ecosystem. Liquidity was no longer an afterthought, and investors saw secondaries as a key mechanism for managing exposure, optimizing portfolios, and unlocking capital.

One of the biggest shifts during this period was the expansion of secondaries beyond private equity into venture capital, private credit, infrastructure, and real estate. What had traditionally been a market focused on transferring LP interests in private equity funds now covered a wide range of alternative assets. Dedicated secondary funds emerged for venture capital, making it easier than ever for investors to buy and sell stakes in high-growth private companies.

At the same time, secondaries became more structured and efficient. Previously, most secondary transactions were negotiated privately between buyers and sellers, often with steep discounts and long due diligence processes. But by the late 2010s, pricing had become more transparent, and new intermediaries helped facilitate deals, reducing transaction friction.

GP-led secondaries also took off during this period. No longer just a tool for restructuring struggling funds, they became a legitimate strategy for venture capital firms to extend the life of their funds and hold onto high-performing companies longer. Some of the industry’s biggest players began using GP-led secondaries as a way to roll top-tier assets into continuation funds, rather than being forced to sell them prematurely.

By 2019, annual secondary transaction volume had surged past 80 billion dollars, with venture capital representing a growing share of the market. Investors now saw secondaries as more than just a liquidity tool—they were an essential mechanism for maximizing returns in private markets.

The groundwork had been laid for even bigger growth, but no one could have predicted how the next global crisis would reshape the secondary market yet again.

The COVID-19 Era and the Acceleration of GP-Led Deals (2020–2022)

At the start of 2020, secondaries were on track for another record-breaking year. The market had steadily expanded over the previous decade, transaction volume was increasing, and investor confidence in secondaries was at an all-time high. Then, COVID-19 hit, and everything stopped.

As public markets plummeted and global uncertainty took hold, secondary transactions froze. Many investors expected a repeat of 2008, where forced selling would create a flood of discounted assets. But this time, things played out differently.

While some LPs sold assets due to liquidity constraints, there was no mass sell-off. Public markets rebounded far more quickly than anticipated, and investors were more flexible with their allocation targets. Instead of liquidating positions at steep discounts, many chose to hold. The traditional LP-led secondaries market slowed, but GP-led transactions surged.

With IPOs and acquisitions delayed, venture capital firms turned to the secondary market as a way to provide liquidity while maintaining control over their strongest assets. GP-led continuation funds became a preferred alternative to exiting through public markets. Sponsors saw these deals as an opportunity to retain exposure to their best-performing companies while generating liquidity for existing investors.

By 2021, GP-led secondaries had fully entered the mainstream, surpassing LP-led transactions for the first time. Single-asset continuation funds became especially popular, allowing venture firms to roll over ownership in their highest-growth companies instead of selling outright. The stigma that once surrounded secondaries disappeared as top-tier sponsors embraced the strategy.

Total secondary market volume hit 134 billion dollars in 2021, shattering previous records. The secondary market had evolved from a back-office liquidity solution into a core part of venture capital’s exit strategy.

By 2022, secondaries had cemented their role as a permanent fixture in venture investing. But even as transaction volume continued to rise, another shift was beginning to take shape—one that would redefine the future of the secondary market entirely.

The Future: Technology, Marketplaces, and the Democratization of Secondaries

For most of its history, the secondary market was the domain of institutional investors. Buying and selling stakes in venture-backed companies or private equity funds required significant capital, deep industry connections, and a complex negotiation process. While change is underway, this phase is still in its infancy. There are still very few people who know they can participate in this market, and even fewer who are taking advantage of it.

Several forces are driving the early stages of this democratization. The first is the growth of fund automation and digital infrastructure. Historically, secondary transactions were highly manual, requiring extensive paperwork, legal coordination, and long negotiation cycles. Today, new digital platforms are streamlining the process, making it easier for investors to execute secondary deals efficiently. Lower transaction costs and faster execution are reducing the friction that has long defined the market, setting the foundation for broader participation.

The second shift is the rise of technology-enabled marketplaces that are making it easier to connect buyers and sellers. Platforms like Forge and Nasdaq Private Market are creating more transparent and structured marketplaces for venture secondaries. These platforms are still largely used by institutions and accredited investors, but they represent an early step toward a more accessible secondary market.

The third and perhaps most important driver is the increased investment knowledge among the general public. Over the past decade, individual investors have gained unprecedented access to financial markets, thanks to the rise of commission-free trading, crowdfunding platforms, and broader financial education. This shift accelerated during the COVID-19 era, when retail investing surged. Despite this progress, awareness of private secondaries remains extremely low, and even among those who know it’s possible, participation is limited.

At Cold Capital, we’re here to help you navigate this new and evolving market. Investing in secondaries allows you to invest like a venture capitalist, gaining exposure to high-growth private companies without having to wait for an IPO. But understanding the nuances of the secondary market—how deals are structured, how pricing works, and where opportunities lie—is key to making smart investment decisions. Our goal is to equip you with the insights and knowledge to take advantage of this emerging asset class, giving you access to opportunities that were once reserved for institutions.