What does StepStone’s $3.3 billion venture secondaries fund tell us about LPs’ current appetite for venture?


StepStone has raised its largest fund ever dedicated to investing in venture secondaries, the firm announced last week. This fund raise not only reveals a lot about StepStone’s venture secondaries investing prowess, but also about what LPs are thinking about the current venture market.

The fund, called StepStone VC Secondaries Fund VI, raised $3.3 billion. This is a big step up from the fund’s predecessor, which closed at a then-record size of $2.6 billion in 2022. According to StepStone, Fund VI was raised from both existing and new LPs and was oversubscribed.

Secondaries funds like StepStone buy existing investors’ equity stakes in individual startups, known as direct secondaries, and buy LP stakes in venture funds. Direct secondaries give LPs access to startup stakes in already successful companies that are close to exit, which means less risk and a shorter time to profit.

This record-setting fund comes at a time when venture fundraising has declined sharply. According to PitchBook data, venture funds raised $66.9 billion in 2023. This represents a 61% decrease from 2022 when funds closed at a record-breaking $172.8 billion.

While the negative numbers for overall venture fund raising might indicate that LPs are less interested in investing in startups, Brian Borton, 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 now evaporated, they’re looking for venture strategies that return results faster and with less risk.

“The level of LP interest in venture capital remains strong,” Borton said. “A lot of LPs are looking for broader or more differentiated ways to increase their venture exposure and I think secondaries have certainly resonated as a way to increase that exposure.”

He added that LPs are also looking for ways to invest in venture-backed companies without a long holding period. VCs, particularly those who invest in the earliest stages, tend to hold investments for the longest time of any private asset class.

“A lot of LPs have learned the lesson that you can’t predict the timing in the venture capital markets,” Borton said. “There remains institutional commitment to the asset class, which we haven’t seen in previous cycles. LPs aren’t giving up, they’re just being more selective in who they’re backing and making sure they’re doing it the right way.”

This fundraise also reflects what LPs are thinking about the primary late-stage market. LPs may choose to back secondary vehicles instead of traditional late-stage or growth-stage focused funds because of the price. According to PitchBook data, the average late-stage valuation has actually increased since the initial drop when the market cooled off in 2022. Meanwhile, many secondary deals are still trading at a discount, according to data from secondary deal tracking platform CapLight.

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

Venture firms, unless they are registered investment advisers, can only hold 20% of their portfolios in secondary stakes, per SEC requirements. This means there aren’t a lot of buyers for these secondary stakes other than dedicated secondary funds, hedge funds, and crossover investors like Fidelity and T. Rowe Price.

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

“We have the largest fund, but we really believe it’s still small relative to the market opportunity that’s in front of us,” Borton said. “That allows us to be very selective in who we choose and who we want to transact.”

Venture secondaries activity has increased this year compared to last year. CapLight co-founder and CEO Javier Avalos told TechCrunch that so far this year his platform has tracked $600 million in transaction volume, which represents a 50% increase compared to annual activity at this time in 2023.

“What is encouraging is that the increase in volume is coming from both an increase in the number of closed trades and an increase in average trade size,” Avalos told TechCrunch via email. “In Q2 2023, the average closed secondary trade size we saw was $1 million. We have seen nearly double the closed trade size this quarter, indicating that more institutional investors are active in the buy side market, as these funds typically participate in larger deals than individual investors.”

If LPs continue to be interested in the venture secondaries space, and trading volumes continue to rise, Borton may be right that StepStone’s $3.3 billion fund is the largest right now, but there’s room in the market for more funds of that size or greater. StepStone’s fund may not remain the largest for long.


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