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The VC Liquidity Crisis: Why Secondaries Are Stepping In for IPOs
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By Matthew Strozier, WSJ Pro
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Good day. There is a lot of buzz about the potential for blockbuster initial public offerings this year. These big listings would come as a relief to limited partners starved for returns on their VC bets.
A new whitepaper from private-markets investment firm StepStone Group says that a few big IPOs won’t cure venture-capital firms’ liquidity headache. StepStone's paper explains why return-hungry investors might be better off banking on venture secondaries.
To be sure, StepStone is among the largest players in the venture secondary market. StepStone accurately forecast a surge in venture secondaries that began in 2022 when the economy and venture investing slowed.
StepStone’s paper explains the reasons secondaries are ascendant in venture capital: fast-growing startups staying private longer, a massive expansion of venture capital over the past decade and a backlog of pre-IPO companies—among other factors. (There are three basic types of venture secondaries: purchases of LP interests in funds, general partner-led portfolio transactions, and direct sales of existing startup shares.)
StepStone’s paper says IPOs can no longer play the liquidity role for venture capital that they once did. “Today’s unicorns represent an estimated $6 trillion in market capitalization, compared with about $600 billion in IPO value at the market’s 2021 peak. Even if IPOs continued at that pace, it would take a decade for the current cohort to go public—and it’s unclear whether IPO volumes will ever return to those levels.”
Acquisitions of venture-backed startups jumped last year, with VC-backed startups often serving as purchasers. Secondaries aren’t the only option, in other words, but they are gaining appeal.
Founders, early employees and investors are increasingly turning to direct secondaries, or directly selling startup shares, to get some cash now. In some ways, yesterday’s IPO is today’s direct secondary market.
Consider this: StepStone said a conservative estimate puts the addressable market for direct secondaries at $185 billion. It said that about 40% of this market—roughly $75 billion—changes hands annually. That figure is nearly double the size of the IPO market in 2024.
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And now on to the news...
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A SpaceX Falcon 9 rocket takes off in March 2025. AUBREY GEMIGNANI/NASA VIA GETTY IMAGES
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SpaceX and xAI are planning a megamerger. Elon Musk’s rocket-maker SpaceX and artificial-intelligence startup xAI are planning to merge into one company, people familiar with the matter said. SpaceX executives have started to tell some investors about the planned tie-up, one of the people said.
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xAI sought to raise $15 billion from investors for a $230 billion valuation last year, while SpaceX was seeking an $800 billion valuation in a December tender offer, The Wall Street Journal previously reported.
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Musk has launched plans to take SpaceX public this year in what could be one of the biggest initial public offerings on record.
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The $100 Billion Megadeal Between OpenAI and Nvidia Is on Ice
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Nvidia’s plan to invest up to $100 billion in OpenAI to help it train and run its latest artificial-intelligence models has stalled after some inside the chip giant expressed doubts about the deal, people familiar with the matter said. The companies unveiled the giant agreement last September. They announced a memorandum of understanding for Nvidia to build at least 10 gigawatts of computing power for OpenAI, and the chip maker also agreed to invest up to $100 billion to help OpenAI pay for it. As part of the deal, OpenAI agreed to lease the chips from Nvidia.
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OnlyFans in Talks to Sell Majority Stake to Investment Firm
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OnlyFans, the British online platform popular with sex workers and celebrities, is in talks to sell a majority stake to an investment firm in a deal that values it at around $3.5 billion, according to people familiar with the matter. Architect Capital is in exclusive talks to take a nearly 60% stake in the business, the people said. Including debt, the transaction would value OnlyFans at around $5.5 billion, they said. Architect Capital is a San Francisco-based asset manager that looks to fix up businesses, especially where it sees opportunities to build a better financial infrastructure, according to its website.
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Funds
Yosemite, a venture-capital firm dedicated to making cancer nonlethal, closed on over $200 million toward its second fund, which has a target of up to $350 million.
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VulcanForms, a Devens, Mass.- based digital metal manufacturing platform, closed a $220 million investment led by Eclipse and 1789 Capital.
Poetiq, a Mountain View, Calif.-based startup focused on artificial general intelligence, scored $45.8 million in seed funding co-led by Fyrfly Venture Partners and Surface Ventures.
Slice Global Equity, a New York-based global equity compliance and management platform for multinational companies, raised $25 million in Series A funding. Insight Partners led the round, which included participation from TLV Partners, R-Squared Ventures and Jibe Ventures.
Northslope, a Denver-headquartered software startup that ships AI applications on the Palantir operating system, landed a $22 million investment co-led by Friends & Family Capital and Goldcrest Capital.
Bits, a Stockholm-based provider of compliance and onboarding infrastructure for regulated fintech companies and banks, snagged €12 million in Series A funding. Alstin Capital led the round, which included contributions from Cherry Ventures, Unusual Ventures and Alliance Ventures.
When, a Chicago-based workforce transitions platform helping organizations and employees navigate healthcare and benefits changes, secured $10.2 million in Series A financing. ManchesterStory and 7wire Ventures co-led the round, which included participation from Mairs & Power Venture Capital, B Capital, Enfield Capital Partners and others.
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DANA SMITH FOR WSJ; CAM POLLACK/WSJ, ISTOCK
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