Venture

What StepStone’s $3.3B venture secondaries fund tells us about LPs’ current appetite for venture

Comment

venture secondaries, StepStone
Image Credits: Nuthawut Somsuk / Getty Images

StepStone raised the largest fund dedicated to investing in venture secondaries ever, the firm announced last week. This fundraise doesn’t just say a lot about StepStone’s venture secondaries investing prowess, but also about how LPs are thinking about the current venture market.

The fund, StepStone VC Secondaries Fund VI, raised $3.3 billion. This marks a big step up from the fund’s predecessor, which closed on $2.6 billion, a record size at the time, in 2022. Fund VI was raised from both existing and new LPs and was oversubscribed, according to StepStone.

Secondaries funds like StepStone’s buy existing investor equity stakes in both individual startups, known as direct secondaries, and LP stakes in venture funds. Direct secondaries allow LPs access to startup stakes in already successful companies nearing an exit, which means less risk and less time to reward.

This record-setting fund comes at a time when venture fundraising is down sharply. In 2023, venture funds raised $66.9 billion, according to PitchBook data. That marks a 61% decrease from 2022 when funds closed on a record-breaking $172.8 billion.

While the negative overall venture fundraising numbers may imply that LPs are less interested in investing in startups, Brian Borton, a VC and growth equity partner at StepStone, told TechCrunch he doesn’t think that’s necessarily true. He thinks LPs are still just as interested, but after the wild valuations of 2020 and 2021, many of which have evaporated now, they are looking for venture strategies that return results faster and with less risk.

“LPs’ interest level in venture capital continues to be strong,” Borton said. “A lot of LPs are looking for broader or more differentiated ways of building their venture exposure and I think secondaries as a method of building that exposure certainly resonated.”

He added LPs are looking for ways to invest in venture-backed companies without as long of a holding period too. VCs, especially those that invest at the early stages, hold investments the longest of any private asset class.

“A lot of LPs learned the lesson that you can’t time the venture capital market,” Borton said. “There continues to be this institutional commitment to the asset class that we haven’t necessarily seen in past cycles. LPs aren’t throwing in the towel, they are just being more selective in who they are backing and making sure they are doing it in the right way.”

This fundraise also shows what LPs are thinking about the primary late-stage market too. LPs may be choosing to back a secondaries vehicle over a traditional late-stage or growth-stage focused fund because of price. Median late-stage valuations actually have risen since their initial decline when the market cooled in 2022, according to PitchBook data. Meanwhile, many secondaries deals still trade at a discount, according to data from secondaries deal tracking platform Caplight.

This fund close, and what it says about LP interest in late-stage startups and venture secondaries, should be good news to VCs. Many VCs are looking for liquidity in a still quiet exit market and while investors and startups want to sell stakes not every investor is allowed to buy.

Venture firms, unless they are registered investment advisors, can only hold up to 20% of their portfolio in secondary stakes, per SEC requirements. This means that there aren’t a ton of buyers for these secondary stakes outside of dedicated secondaries funds, hedge funds and crossover investors like Fidelity and T. Rowe Price.

Borton said that $3.3 billion is actually a small fund when you look at the potential size of the venture secondaries market, which continues to grow as startups continue to stay private for longer.

“We have the largest fund but we truly believe that is still undersized relative to the market opportunity in front of us,” Borton said. “This allows to be very selective in what we choose and transact on.”

Venture secondaries activity is up this year compared to last. Javier Avalos, the co-founder and CEO of Caplight, told TechCrunch that its platform has tracked $600 million of transaction volume so far this year, which represents a 50% increase over yearly activity at this time in 2023.

“What’s encouraging is that the pickup in volume is coming from both an increase in the number of trades closed and an increase in the average trade size,” Avalos told TechCrunch over email. “In Q2 of 2023, the average closed secondary trade size we observed was $1 million. We’ve seen almost double the closed trade size this quarter, indicating more institutional investor buyers are active in the market, as these funds typically participate in larger deals than individual investors would.”

If LPs are increasingly interested in the venture secondaries space, and trading volume continues to increase, Borton might be right that while StepStone’s $3.3 billion fund is the largest now, the market has room for more funds of that size or greater. StepStone’s fund may not be the largest fund for long.

More TechCrunch

Fisker is just a few days into its Chapter 11 bankruptcy, and the fight over its assets is already charged, with one lawyer claiming the startup has been liquidating assets…

The fight over Fisker’s assets is already heating up

A hacker is advertising customer data allegedly stolen from the Australia-based live events and ticketing company TEG on a well-known hacking forum. On Thursday, a hacker put up for sale…

Hacker claims to have 30 million customer records from Australian ticket seller giant TEG

Welcome to Startups Weekly — Haje‘s weekly recap of everything you can’t miss from the world of startups. Sign up here to get it in your inbox every Friday. Elon…

Tesla makes Musk best-paid CEO of all time and Fisker bites the dust

Dot is a new AI companion and chatbot that thrives on getting to know your innermost thoughts and feelings.

Dot’s AI really, really wants to get to know you

The e-fuels startup is working on producing fuel for aviation and maritime shipping using carbon dioxide and other waste carbon streams.

E-fuels startup Aether Fuels is raising $34.3 million, per filing

Fisker was facing “potential financial distress” as early as last August, according to a new filing in its Chapter 11 bankruptcy proceeding, which the EV startup initiated earlier this week.…

Fisker faced financial distress as early as last August

Cruise, the self-driving subsidiary of General Motors, has agreed to pay a $112,500 fine for failing to provide full information about an accident involving one of its robotaxis last year.…

Cruise clears key hurdle to getting robotaxis back on roads in California

Feel Therapeutics has a pretty original deck, with some twists we rarely see; the company did a great job telling the overall story.

Pitch Deck Teardown: Feel Therapeutics’ $3.5M seed deck

The Rockset buy fits into OpenAI’s broader recent strategy of investing heavily in its enterprise sales and tech orgs.

OpenAI buys Rockset to bolster its enterprise AI

The U.S. government announced sanctions against 12 executives and senior leaders of the Russia-based cybersecurity giant Kaspersky. In a press release, the Department of the Treasury’s Office of Foreign Assets…

US government sanctions Kaspersky executives

Style DNA, an AI-powered fashion stylist app, creates a personalized style profile from a single selfie. The app is particularly useful for people interested in seasonal color analysis, a process…

Style DNA gets a generative AI chatbot that suggests outfit ideas based on your color type

Rates of depression, anxiety and suicidal thoughts are surging among U.S. teens. A recent report from the Center of Disease Control found that nearly one in three girls have seriously…

Khosla-backed Marble, built by former Headway founders, offers affordable group therapy for teens

Cover says what sets it apart is the underlying technology it employs, which has been exclusively licensed from NASA’s Jet Propulsion Laboratory.

A new startup from Figure’s founder is licensing NASA tech in a bid to curb school shootings

Spotify is introducing a new “Basic” streaming plan in the United States, the company announced on Friday. The new plan costs $10.99 per month and includes all of the benefits…

Spotify launches a new Basic streaming plan in the US

Photographers say the social media giant is applying a ‘Made with AI’ label to photos they took, causing confusion for users.

Meta is tagging real photos as ‘Made with AI,’ say photographers

Website building platform Squarespace is selling Tock, its restaurant reservation service, to American Express in a deal worth $400 million — the exact figure that Squarespace paid for the service…

Squarespace sells restaurant reservation system Tock to American Express for $400M

Featured Article

Change Healthcare confirms ransomware hackers stole medical records on a ‘substantial proportion’ of Americans

The February ransomware attack on UHG-owned Change Healthcare stands as one of the largest-ever known digital thefts of U.S. medical records.

19 hours ago
Change Healthcare confirms ransomware hackers stole medical records on a ‘substantial proportion’ of Americans

Google said today that it globally paused its experiment that aimed to allow new kinds of real-money games on the Play Store, citing the challenges that come with the lack…

Google pauses its experiment to expand real-money games on the Play Store

Venture firms raised $9.3 billion in Q1 according to PitchBook data, which means this year likely won’t match or surpass 2023’s $81.8 billion total. While emerging managers are feeling the…

Kevin Hartz’s A* raises its second oversubscribed fund in three years

Google is making reviews of all your movies, TV shows, books, albums and games visible under one profile page starting June 24, according to an email sent to users last…

Google is making your movie and TV reviews visible under a new profile page

Zepto, an Indian quick commerce startup, has more than doubled its valuation to $3.6 billion in a new funding round of $665 million.

Zepto, a 10-minute delivery app, raises $665M at $3.6B valuation

Speak, the AI-powered language learning app, has raised new money from investors at double its previous valuation.

Language learning app Speak nets $20M, doubles valuation

SpaceX unveiled Starlink Mini, a more portable version of its satellite internet product that is small enough to fit inside a backpack.  Early Starlink customers were invited to purchase the…

SpaceX debuts portable Starlink Mini for $599

Ali Rathod-Papier has stepped down from her role as global head of compliance at corporate card expense management startup Brex to join venture firm Andreessen Horowitz (a16z) as a partner…

Brex’s compliance head has left the fintech startup to join Andreessen Horowitz as a partner

U.S. officials imposed the “first of its kind” ban arguing that Kaspersky threatens U.S. national security because of its links to Russia.

US bans sale of Kaspersky software citing security risk from Russia 

Apple has released Final Cut Pro for iPad 2 and Final Cut Camera, the company announced on Thursday. Both apps were previously announced during the company’s iPad event in May.…

Apple releases Final Cut Pro for iPad 2 and Final Cut Camera

Paris has quickly established itself as a major European center for AI startups, and now another big deal is in the works.

Poolside is raising $400M+ at a $2B valuation to build a supercharged coding co-pilot

The space industry is all abuzz about how SpaceX’s Starship, Blue Origin’s New Glenn, and other heavy-lift rockets will change just about everything. One likely consequence is that spacecraft will…

Gravitics prepares a testing gauntlet for a new generation of giant spacecraft

LTK (formerly LiketoKnow.it and RewardStyle), the influencer shopping app with 40 million monthly users, announced on Thursday the launch of a free direct message tool for creators to instantly share…

Influencer shopping app LTK gets an automatic direct message tool

YouTube appears to be taking a firm stance against Premium subscribers who attempt to use a VPN (virtual private network) to access cheaper subscription prices in other countries. This week,…

YouTube confirms crackdown on VPN users accessing cheaper Premium plans