14. June 2023

What are secondaries in the context of venture capital and how do they differ from primary investments?

Secondaries, in the context of venture capital, refer to the buying and selling of existing investments in privately held companies, rather than investing directly in those companies as a primary investor.

In a primary investment, a venture capital firm provides funding to a startup or early-stage company in exchange for equity or ownership in the company. This type of investment is made directly into the company and is typically done early in the company’s lifecycle.

In contrast, a secondary investment involves buying or selling ownership stakes in a company that already has existing investors. These transactions can occur in a variety of ways, including the sale of shares by existing shareholders, the purchase of shares from a previous investor, or the acquisition of a portfolio of shares in multiple companies.The primary difference between primary and secondary investments is that in a primary investment, the venture capital firm is providing new capital to a company in exchange for ownership, while in a secondary investment, the venture capital firm is buying or selling ownership stakes in an already established company.

Secondary transactions are typically used to provide liquidity for existing shareholders or to enable investors to reposition their portfolios. By buying or selling secondary shares, investors can gain exposure to new companies, reduce their exposure to existing companies, or generate liquidity without waiting for an IPO or other exit event.

At Nordic Eye, we are currently raising our first Liquidity Fund. A fund seeking to capitalize on and create value for investors from the often very lucrative secondary opportunities, primarily in Europe and the US. Our dedicated team in Copenhagen and London have a significant experience in venture capital and from previous roles in dedicated secondary funds.

The fund will seek to provide liquidity solutions for founders, employees and early investors, specifically in more mature growth tech companies with a more balanced risk profile that traditional venture. The Nordic Eye Liquidity Fund is designed to address the lack of liquidity in the venture capital market, allowing insiders and early investors to de-risk their personal wealth and companies to stay private longer. We are aiming for a first close during summer 2023, and the fund will play an important role in the growth and development of the European venture ecosystem.

Peter Hede

Peter Hede

Partner at Nordic Eye