by Devang Mehta
25 Apr, 2024
Mirai Capital Global is embarking on a strategy to invest part of its fund into the secondaries market.
While the preponderance of attention in Venture Capital has been towards primaries (investments directly into startups) secondary transactions (buying shares of existing shareholders) are getting increasingly popular in recent times.
I’d be remiss not to explain the technicalities in some detail: In a primary investment, money flows from the investor into the startups bank account and New shares are issued; correspondingly, in a secondary transaction an incoming investor buys shares from existing angels, founders, employees, etc (No New shares issues and no money to the startup).
Perhaps, on account of this dynamic, secondary investments lack lustre – since the money flow does not result in new product launches, expanding teams, or thereabouts. However, this thinking is misplaced and a bit naïve: While the immediate and literal consequence is “merely shares changing hands”, the secondaries phenomenon plays a tremendous role in the growth of the entire startup ecosystem globally.
The impact can best be described by an analogy: Think of a public stock market opening in an erstwhile Socialist economy. The impact would be immediate and widespread: it would encourage people to quit safe careers and become entrepreneurs, it would turn risk-averse investors to become bolder, would catalyse capital formation. impel governments to create legislation that encourages innovation and ensure numerous other positive ripple effects across the country.
A whitepaper published by Moonfare in 2022 stated that Private Equity Secondaries reached a staggering $88 Billion of transaction value and growing at a steady clip. Both LPs and GPs interviewed as part of the study stated that secondaries formed an integral part of their operational strategy, and moreover foresaw a consistent growth in the market driven by classical drivers of J-Curve mitigation, diversification, and portfolio rebalancing.
The creation and maturing of a secondaries industry in a geography greatly emboldens the ‘wild spirits’ in the startup world – eventually realizing in far-reaching, significant, and uplifting effects for numerous stakeholders in the economy. Which is why we at Mirai are delighted to launch this practice within our Multi-billion dollar Fund. We fervently believe that this practice will impel strong growths in innovation ecosystems in geographies of participation and collectively, have a material impact on the early-stage industry at a global level.
Stay tuned as we make further inroads into the exciting world of Secondaries in 2024.
