Secondaries in Venture: LP Stakes to Continuation Funds

Venture capital has a structural liquidity problem. Companies stay private far longer than the ten-year fund life assumed by the standard LPA; the best assets in a 2015 vintage may still be private in 2026. LPs, meanwhile, have rediscovered that DPI — cash actually returned — is the metric that matters, and paper markups do not pay pension benefits. Out of that tension has grown a full secondary market: for LP stakes, for direct company shares, and for entire portfolios. Every GP now needs to understand it, both as a seller of assets and as a manager whose own LPs may quietly be trading out.

Why venture needs secondaries more than ever

Three forces converged:

• Time-to-liquidity stretched. IPOs became rarer and later; acquirers grew cautious. A seed investment can now sit unrealized for twelve to fifteen years.
• The unrealized mountain grew. A decade of markups left funds rich in TVPI and poor in DPI, and LPs — over-allocated after public-market drawdowns — needed cash back before committing to new funds.
• DPI became the fundraising gate. For emerging managers especially, a Fund I with real distributions outraises a Fund I with beautiful marks. Selling something has become part of the job.

LP interest secondaries

The oldest segment: an LP sells its stake in a fund — the funded position plus any unfunded commitment — to a secondary buyer, who steps into the LP's shoes for the rest of the fund's life.

Why LPs sell: over-allocation (the denominator effect), portfolio pruning, a strategy shift, or plain need for cash. Selling is now routine portfolio management, not a distress signal.

Who buys: dedicated secondary firms. Industry Ventures has specialized in venture secondaries for decades and is often the first call for early-stage fund positions. Lexington Partners and Coller Capital anchor the large end of the market across private assets. StepStone Group, HarbourVest Partners, and Pantheon buy through their platforms.

How pricing works: buyers underwrite the underlying portfolio company by company and bid as a percentage of NAV. Venture positions habitually trade at material discounts — wider than buyout — because venture NAVs lean on the last round's price, which may be years old, and because the buyer prices in duration. A GP's marks are, in effect, publicly tested every time an LP runs a process. Conservative, defensible marks quietly protect your LPs' exit price.

What it means for the GP: LP transfers generally require GP consent under the LPA. Be responsive and professional — obstruction gets remembered — but know who is entering your fund. A good secondary buyer is a future primary LP; several build primary relationships exactly this way.

Direct secondaries: trading the shares themselves

The second segment trades shares of individual private companies — employee and ex-employee common, founder shares, angels' positions, and increasingly funds' own positions.

• Marketplaces and platforms: Forge Global and EquityZen run marketplaces matching buyers and sellers of pre-IPO shares; Hiive does the same with live pricing visible to participants; Nasdaq Private Market runs company-sanctioned programs and tender offers. Caplight provides price discovery and data on top of this market.
• Dedicated direct-secondary investors: 137 Ventures buys founder and early-holder positions; G Squared builds late-stage portfolios substantially through secondary purchases; Industry Ventures runs direct strategies alongside its fund-stake business.

Tender offers deserve their own note: a company (often with a new lead investor) organizes a structured buyback window in which employees and early holders may sell a capped amount at a set price. For GPs, tenders are the cleanest way to take partial liquidity in a winner — company-sanctioned, priced off a real round, no transfer-restriction friction.

The GP-relevant mechanics: private share transfers face rights of first refusal, board approval requirements, and information asymmetry — buyers of common often know little about preference stacks above them. If you are selling a position, expect the company's ROFR process to add weeks; if you are buying, price the preferences, not just the headline valuation.

GP-led secondaries: strips and continuation funds

The fastest-growing and most scrutinized segment puts the GP on both sides of the trade.

Strip sales

The fund sells a strip — a fixed percentage of several (or all) portfolio positions — to a secondary buyer, converting part of the portfolio to cash at a negotiated price. The fund's LPs get DPI; the fund keeps the rest of each position. For seed funds sitting on marked-up but unrealized portfolios, a strip sale is often the most practical DPI tool available: one negotiation, diversification for the buyer, and no forced choice on any single company.

Continuation funds

The structure that migrated from buyouts: the GP moves one or more assets out of an aging fund into a new vehicle the same GP manages, funded by secondary investors. Existing LPs choose between cashing out at the transaction price or rolling into the new vehicle. The GP typically resets economics on the new vehicle — and therein lies the controversy.

Why GPs use them: the fund is at end-of-life but the asset is still compounding; a forced sale would destroy value; some LPs want cash now while others want to stay. All legitimate. But the conflict is structural: the GP is the seller (as fiduciary to the old fund) and the buyer (as manager of the new one). The GP benefits from a low price on one side and owes its LPs a high price on the other, while standing to crystallize carry and start a fresh fee stream.

Market practice — pushed hard by ILPA guidance — has converged on the safeguards LPs should expect:

• A competitive process among third-party buyers to set the price externally.
• LPAC review of the conflict, and often a fairness opinion.
• Status-quo rollover options, so LPs who roll are not forced into worse economics than they had.
• Full disclosure of pricing, process, GP economics, and alternatives — with enough time for LPs to actually decide.

Venture continuation funds are newer and rarer than their buyout cousins, partly because single venture assets are more volatile and harder to price. Expect more of them as the unrealized mountain ages.

What GPs should actually do

• Build a liquidity policy before you need one. Decide in advance what would make you sell: ownership above target, a position exceeding some share of fund NAV, marks you cannot defend, or a fund entering year nine or ten.
• Sell strips of winners earlier than feels natural. Taking 10–20% off a marked-up winner converts TVPI into DPI, de-risks the fund, and — the part GPs underweight — materially improves the next fundraise. Nobody regrets the partial sale of a winner at a good price; plenty regret riding a mark round-trip to zero.
• Treat your marks as the price of your LPs' liquidity. Aggressive marks flatter the quarterly letter and then get repriced — visibly — the moment an LP tries to sell.
• If you run a GP-led process, over-communicate. The economics only have to be fair; the process has to look fair too. LPs forgive conservative pricing far more readily than they forgive surprise.

Secondaries have turned venture's liquidity problem into a functioning market. The GPs who thrive in it treat liquidity as a discipline — planned, priced, and communicated — rather than an event that happens to them in year eleven.