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Lightspeed Joins The Secondaries Circus
Liquidity markets continue to mature as the IPO window becomes less and less relevant.
Adam Hardej
June 18, 2024
Lightspeed joins a star studded group of fancy firms who have recently become Registered Investment Advisors (“RIAs”) in order to move weight outside of typical “venture” (as defined by the US gov) investments. Marks another move away from counting on IPOs for liquidity. Some thoughts there and other Sandhill content below.
IPO market feeling left out :(
The Financial Times put out an article late last week entitled: “Silicon Valley’s Lightspeed Ventures shifts focus to secondary markets” and shared some notes / quotes on their move to follow firms like Andreessen Horowitz, General Catalyst and Sequoia Capital on the strategy shift. The article quotes Michael Romano, Lightspeed’s chief business officer, who said: “Given market dislocation we were able to purchase a lot of very compelling new opportunities at significant discounts of 45 to 50 per cent compared to the last fundraising round.”
But I think this is a bit of a side show to the larger point.
The bigger point comes right after that: “Absent an IPO or any M&A, venture capital firms need to get more creative to identify paths to liquidity,” Romano said. “Secondaries are a really important component of that.”
The reason I say that the discount storyline is a side-show is because you don’t shift your whole fund strategy/legal entity for the sake of one-off bargains. This marks a longer term view of the absents of IPO/M&A outcomes. If you think the IPO window is closed for the season, you suck it up and wait. If you think the IPO window might never be what it used to be, you steer the $25B AUM ship towards different strategies.
This is in line with my personal view (convenient) of how we’ll continue to see the best companies stay private longer. I’ve gone as far as to joke that IPOs “aren’t cool anymore” and that ringing the bell feels more like a surrender than the “holy shit we made it” moment it used to embody. There’s a lot that goes into this, but in very basic terms:
Why would you go through the pain of IPO compliance and the grind of quarter-to-quarter market pressure if you could just raise the same money in private markets?
The dumb answer is… you don’t really. Which then points to the uglier side of IPOs becoming a secondary option (no pun intended but still appreciated) to raising in private markets. Sooooo if you can’t raise privately - you raise publicly? That’s the definition of not cool. Or in more professional terms “negative signal” for the vests in the audience.
Bit of a predicament for VCs who are counting on IPOs to turn their winners into cash returns for their LPs.
Longer term bet here is that the late-stage secondary market will continue to mature and fill the gap the old-school IPOs (the cool ones) left. This pairs well with a bet against the US Gov making IPOs easier and/or curbing rampant speculation (meme stock risk) in the near or ever future.
Not quite sure if that’s a “good” or “bad” thing from a higher minded "what’s fair?” perspective, but that’s were the wind seems to be blowing.
Sandhill Exclusive Content
Join Us Live This Thursday!
Join us live to chat about the Future of Interchange with our guests, Nikil Kondoru, Head of Expansion at Lithic, and Matt Brown, Partner @ Matrix.
What’s “interchange” you ask? According to ChatGPT: in the context of payment systems, interchange refers to the fee paid between banks for the acceptance of card-based transactions. This fee is typically paid by the merchant's bank (acquirer) to the cardholder's bank (issuer) and is a component of the costs associated with processing card payments.
Also, Lithic is a very successful startup and Matrix is a very successful VC firm (they invested in Apple’s Seed round to give you a sense of what I mean by successful).
And Check Out Our Podcast…
We recently had the pleasure of talking to Gregory Raiz. Greg is the founder of Raiz Capital, who specializes in helping early founders in the earliest stages of business formation.
Prior to starting Raiz Capital, Greg was the managing director of Techstars Boston where he worked with founders across a broad set of technologies.
Greg has also led the executive design and engineering efforts on hundreds of products including applications for companies and brands such as AAA, Dunkin Donuts, Verizon, Six Flags, RunKeeper, B&H Photo, Care.com, Costco, LL Bean, Sanofi, HP, GE, Macy’s, and many others.
From the Vault 👇
DocSend Co-Founder and CEO Russ Heddleston: Things I wish I knew about building self-serve software.
Learn more about the highs and lows of building self-serve software, from tech industry veteran, Russ Heddleston:
Co-founder and previously CEO of DocSend where he led the acquisition by Dropbox in 2021 for $165m (raised under $15m).
Russ also led product and management roles at Microsoft, Trulia (acq by Zillow), and Greystripe (acq by EPSN.)
Previously, received an MBA from Harvard Business School, a master's in Computer Science from Stanford and a bachelor's in Computer Engineering from Stanford.
This event was brought to in partnership with Sacra :)
Talk soon,
Adam
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