StepStone has raised the largest fund ever dedicated to investing in venture secondaries, the firm announced last week. This significant fundraise highlights both StepStone’s expertise in venture secondaries and how LPs are currently viewing the venture market.
The fund, StepStone VC Secondaries Fund VI, secured $3.3 billion, a notable increase from its predecessor, which closed at $2.6 billion in 2022, then a record size. Both existing and new LPs contributed to Fund VI, which was oversubscribed, according to StepStone.
Secondaries funds like StepStone’s purchase existing investor equity stakes in individual startups (direct secondaries) and LP stakes in venture funds. Direct secondaries provide LPs access to stakes in already successful companies nearing an exit, offering less risk and quicker returns.
This record-setting fund arrives amid a significant decline in venture fundraising. In 2023, venture funds raised $66.9 billion, a 61% drop from 2022’s record $172.8 billion, according to PitchBook data.
Despite these negative trends, Brian Borton, a VC and growth equity partner at StepStone, told TechCrunch that LPs remain interested in venture capital. He believes LPs are seeking strategies that deliver faster results with less risk after the inflated valuations of 2020 and 2021.
“LPs’ interest in venture capital remains strong,” Borton said. “Many LPs are exploring broader or more differentiated ways to build their venture exposure, and secondaries resonate with them.”
He added that LPs are looking for shorter holding periods in venture-backed investments, as early-stage VCs typically have the longest investment horizons among private asset classes.
“A lot of LPs learned that timing the venture capital market is challenging,” Borton said. “Institutional commitment to the asset class persists, but LPs are becoming more selective and strategic in their investments.”
This fundraise also sheds light on LPs’ views of the primary late-stage market. LPs might prefer secondaries over traditional late-stage or growth-stage funds due to pricing. Median late-stage valuations have risen since their initial post-2022 cooling, while many secondaries deals still trade at a discount, according to Caplight data.
The success of this fund signals positive news for VCs seeking liquidity in a quiet exit market. Although many investors and startups want to sell stakes, not all investors can buy.
Venture firms, unless registered as investment advisors, can only hold up to 20% of their portfolio in secondary stakes, limiting the pool of buyers to dedicated secondaries funds, hedge funds, and crossover investors like Fidelity and T. Rowe Price.
Borton noted that $3.3 billion is small relative to the potential size of the venture secondaries market, which grows as startups stay private longer.
“We have the largest fund, but it’s still undersized compared to the market opportunity,” Borton said. “This allows us to be very selective in our transactions.”
Venture secondaries activity has increased this year compared to last. Javier Avalos, co-founder and CEO of Caplight, told TechCrunch that his platform has tracked $600 million in transaction volume this year, a 50% increase over the same period in 2023.
“The increase in volume comes from both more trades and larger average trade sizes,” Avalos said. “In Q2 2023, the average closed secondary trade size was $1 million. This quarter, it’s nearly doubled, indicating more institutional investor participation.”
If LP interest in venture secondaries continues to grow and trading volume increases, StepStone’s $3.3 billion fund might soon be outpaced. The market appears ready for even larger funds.
