The venture secondaries market has had a banner 2025, with activity projected to finish on record totals. However, like the venture itself, activity has concentrated sharply in household names and within hot sectors like AI and cybersecurity. This bifurcation has sparked intense concentration of activity.
For example, according to Forge, the top 20 companies accounted for 95.6% of all secondary trading volume in Q3, and the top five alone captured 74.1% of these dollars. Further, investors are often paying premiums to access hot companies (directly or through fund stakes) — sometimes substantial ones. These dynamics have prompted some investors to question how significant premiums could impact venture secondary returns.
Discounts are a defining feature of private capital secondary markets, effectively acting as the premium buyers demand for taking on assets that can’t be easily traded and as the cost sellers are willing to accept in exchange for liquidity. The stability (or in contrast, volatility) of these discounts serves as a barometer for how efficiently a secondary market is functioning. Liquidity gets “cheaper” as markets grow more efficient at pairing buyers with sellers.
Nowhere is this clearer than in the split between venture and buyout pricing. Buyout funds, the largest and most established corner of the secondaries landscape, consistently attract the smallest discounts. In 2024, average buyout secondary pricing hovered at 94% of NAV, while LP-led buyout sales roughly posted a 10.9% discount. Venture assets, by contrast, have long traded at steeper markdowns — a reflection of their higher risk profiles, more volatile outcomes, and the typically longer, less predictable road to realizing returns.
Since private equity tends to trade within a narrower price band, straightforward discounts often reliably deliver an early IRR lift and bolster overall returns. However, this dynamic breaks down in venture. Greater inefficiency is built into the venture secondaries market by design, a reflection of an asset class defined by wide disparities in company and fund quality.
Therefore, as activity has ramped up through 2025, many veteran secondaries investors caution against relying on “discount to last equity round” as the main underwriting metric for these transactions, a stance grounded in several key principles.
Venture capital is a power-law asset class — a handful of companies generate the bulk of returns. For example, David Clark, a venture FoF veteran at Vencap, analyzed the firm’s entire venture portfolio from 1986 to 2018 — covering 11,350 companies across 250 funds — and found that just 1.1% of companies in the portfolio materialized to become fund returners.
Venture secondaries returns adhere to similar dynamics; access to average performers, whether through fund stakes or direct investments, rarely moves the needle. Exposure to outliers is essential, and concentration can be a meaningful driver of fund outcomes.
For example, Clark, an active player in the venture secondaries market, discussed on LinkedIn that despite a “hot market” the power law still dominates. He emphasized that quality outweighs discount, highlighting that the firm’s most successful VC secondary deal was acquired at a premium to NAV.
A steep secondary market discount is often a signal that the seller is contending with an overstated last round valuation or with a company that may struggle to raise additional capital on attractive terms. That dynamic is particularly common among startups that secured funding during the frothy, pandemic-era boom preceding the 2022 market correction.
Ultimately, in many cases, the discount itself isn’t much of a bargain. Even moderate price cuts in venture secondaries don’t necessarily translate into stronger returns. StepStone’s review of its own venture secondaries portfolio found that transactions struck at tighter discounts actually outperformed those done at markdowns greater than 15 percent.
In venture secondaries, performance is largely anchored in securing quality businesses at sensible, growth-adjusted entry prices and with a high degree of confidence that an exit will materialize. While a transaction might involve a meaningful premium to the last funding round, the multiple paid relative to current or forward revenue offers more valuable insight into the attractiveness of the entry price. Paying a significant premium can be perfectly rational if the underlying valuation multiple remains attractive.
This points to a broader dynamic in private markets. Valuations lag behind actual intrinsic value, and the problem is magnified in venture capital. Companies can double or triple their performance between funding rounds without changes to their paper valuations. Further, many high-quality later-stage venture-backed companies raise rounds infrequently or stop raising altogether, as they reduce burn or reach profitability.
If and when shares surface for sale, investors with an information advantage are best positioned to pay above the last round price. For example, secondaries investors who build meaningful look-through exposure via fund interests across the venture ecosystem gain access to information on a wide range of companies. This allows them to track financial performance and double down via direct secondaries in the best companies.
This said, as AI deals heat up in both primary and secondary venture markets, investors should acknowledge that power dynamics shape outcomes, while keeping a close eye on the concentration and premiums being paid for the hottest startups in secondaries. In buyouts, premiums often reflect forward-looking visibility into steady cash flows. Paying for predictable earnings is certainly worlds apart from vying for unicorn exposure when the company’s terminal dominance as a market leader isn’t clear.
Check out our Continuation Fund Report for more insights on the burgeoning application of these vehicles in the venture landscape.
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