Liquidity without the IPO: why secondaries are Europe's new financing rite of passage

Is your cap table ready for the inevitable? Because whilst founders obsess over primary funding rounds, the smartest companies are already orchestrating secondary deals that solve three problems at once: employee retention, investor rotation, and runway extension. And if you think secondary sales indicate company weakness, you're about six months behind the curve.

The numbers stopped every thumb mid-scroll: secondary discounts for VC-backed startups collapsed from 46 percent in December 2023 to just 12 percent by September 2024. Suddenly, the liquidity that once cost half your paper wealth was trading at barely a haircut. For elite startups, current sellers aren't expected to take any discount on their secondary sales, with some top-tier assets actually commanding a modest uplift.

This isn't just a US phenomenon. 30% of European funding rounds in 2024 were either standalone secondaries or included a secondary component, with founders accessing these transactions as early as Series A. Meanwhile, the global venture secondary market is expected to exceed $120 billion in 2025, making it one of the few growth stories in an otherwise constrained funding environment.

What founders need to understand about the new secondary reality

Secondaries are simply the sale of existing shares in a private company—founders, employees or early investors transfer their stakes to new buyers without diluting the company. But the real magic happens when companies orchestrate board-approved deals that include a "stapled" primary component—essentially using the secondary as a trojan horse to bring in fresh capital and upgrade the investor base simultaneously.

The surge reflects Europe's venture reality check. VC fund distributions hit some of the lowest levels on record in recent quarters, approaching global financial crisis lows, whilst European VC exit values dropped from €156 billion in 2021 to just €34 billion in 2024, despite a 100% year-on-year recovery from 2023's dismal €17 billion. At the same time, inflows to VC-focused secondary funds have doubled since 2022, creating a perfect storm of motivated sellers meeting well-capitalised buyers.

Who wins? Obviously, investors needing liquidity benefit, but companies should note the strategic upside. By running a structured secondary process, management can swap out small cheque angels for institutional players with deeper pockets, clean up cluttered cap tables ahead of major rounds, and reset participation rights that might be hampering governance decisions.

The discount compression that changed everything

Twelve months ago, European growth companies were clearing secondary transactions at brutal 45-50 percent discounts to their last primary round. Fast-forward to today and median discounts have compressed to approximately 12 percent for direct secondaries, whilst in the US market the average premium hit 6% and the median reached 3% in Q1 2025. European pricing typically follows these US trends, with similar bifurcation emerging between top-performing assets and everything else.

The caveat: this data skews heavily towards profitable, category-leading assets. The average 2025 spread is 6.3% on the top quartile and 63% on the bottom quartile, illustrating the market's brutal bifurcation between winners and everything else. Companies with negative gross margins or questionable unit economics still face steep haircuts—if they can transact at all.

Three levers founders can actually control to minimise discounts: parcel size (keep individual lots below 5% of fully-diluted shares to reduce buyer concentration risk), information rights (offering regular KPI updates can help reduce the information asymmetry that drives higher discounts), and stapled primaries (combining secondary sales with a modest primary component often allows buyers to justify pricing closer to the last-round valuation).

Smaller parcel sizes are easier for buyers to digest and create less governance complications—if you're selling 15% of the company versus 2%, investors worry about losing a committed founder. Regular information sharing builds trust and reduces the "mystery discount" that buyers apply when they can't assess company health. Most importantly, when you structure a secondary alongside new primary investment, buyers can blend their risk across both the growth story (primary) and the founder alignment story (secondary), typically resulting in pricing much closer to your preferred share price.

PISCES: the regulatory tailwind you need to know about

The UK is building infrastructure that will institutionalise European secondaries. The Private Intermittent Securities and Capital Exchange System (PISCES) received regulatory approval in May 2025, with the FCA expected to publish final rules in June 2025. The framework operates under a five-year Financial Market Infrastructure sandbox, with potential PISCES platforms expected to launch in the second half of 2025.

PISCES will allow companies to host "intermittent trading events" on FCA-authorised venues, giving boards control over trading windows, disclosure requirements, and eligible counterparties. Think of it as a mini-public market without continuous disclosure requirements—perfect for post-Series A companies wanting to offer employee liquidity without the full IPO burden.

Companies using PISCES will be exempt from stamp duty, a significant advantage over traditional UK public markets. Expect other European regulators to study the UK's approach closely.

Four trends every founder should monitor

Secondaries as portfolio rebalancing: VCs with funds long past their expiration dates are under intense pressure to return capital to LPs, creating motivated sellers. Smart founders can leverage this by approaching older funds (10+ years) first, as these GPs often welcome well-structured liquidity opportunities that help them manage LP relationships whilst maintaining some upside exposure.

Institutional buyer sophistication: Large players like StepStone closed a $3.3 billion VC secondaries fund in June 2024, whilst Industry Ventures raised $1.45 billion for its 10th secondaries fund. These aren't opportunistic vulture funds—they're sophisticated institutional players seeking venture exposure, with StepStone's fund being the largest venture capital secondaries fund ever raised.

Geographic arbitrage: European VC secondaries historically lagged US markets due to smaller scale and complex deal terms, but 30% of European funding rounds in 2024 were either standalone secondaries or included a secondary component, with founders accessing these transactions as early as Series A. First-mover advantage still exists for companies willing to educate their boards.

AI and sector narrative premium: The data shows that secondary pricing increasingly follows primary market narratives. Secondaries dollars are concentrating on trendy sectors like AI, with secondary deals aligning with overall VC priorities. If you're building in a hot sector, secondary buyers will pay up.

Practical steps for founders

Update your articles now: Ensure your shareholder agreements include robust right-of-first-refusal and board-consent provisions. No reputable buyer will close without board approval, but tight wording prevents headaches later.

Map your stakeholders: Identify which early investors, angels, or employees might benefit from partial liquidity. Secondary processes work best when you're solving real stakeholder problems, not just chasing capital.

Model the dilution: A stapled primary still means new money on a preference stack. Understand how secondary buyers' liquidation preferences affect future exit waterfalls, especially if you're considering down-round protection.

Think timing strategically: Secondary processes require significant lead time and planning. If you're considering a primary round in the next 18 months, think through whether a secondary now creates better positioning with growth investors later.

Build your narrative: Secondary buyers are increasingly sophisticated, but they still need compelling stories. Frame your transaction around strategic value creation, not just liquidity provision.

The bottom line

With IPO timelines stretching and acquisition activity slowing, secondary markets have become essential infrastructure for European startups. The companies that treat secondaries as strategic portfolio management—rather than desperate cash grabs—will find themselves with stronger balance sheets, upgraded investor bases, and motivated teams.

The discount compression we've witnessed isn't just a market anomaly. It reflects institutional recognition that Europe's best private companies deserve premium valuations, whether they're public or not. The question isn't whether secondaries will become standard practice—it's whether you'll be ahead of the curve or scrambling to catch up.

For UK-incorporated companies post-Series A, PISCES could be offering regulated liquidity events by early 2026. For everyone else, the secondary market is open for business right now. The only requirement is thinking like a CEO, not just a founder chasing the next primary round.

Let's talk.