PE, VC funding slows in first half of 2024; secondary deals become prominent

Secondary stake sales and buyouts dominated large deals of $50-500 million in the startup space during the first six months of 2024, when total funding fell but late-stage activities started to pick up pace.

According to data from investment banking firm DC Advisory India, 62%, or 23, of the 37 deals in the $50-500 million range during the January-June period were secondary transactions or buyouts, with external primary investment rounds making up only 13%.

In a secondary share sale, the proceeds go to the selling shareholder, while in primary deals, where new shares are issued, the company gets the money.

Total funding for startups fell by 3.8% to about $5.1 billion in the six months, compared with $5.3 billion in the same period in 2023, data from Tracxn showed.

ET reported in March that venture capital investors were increasingly demanding partial exits from late-stage startups as pressure to post returns increased amid a slump in the technology market. A number of investment rounds of $50 million or more in the past year included a significant secondary component, providing liquidity for existing investors.

“We have seen a significant portion of what had to happen, but I think we’re still in a situation where companies that are profitable or are on a path to profitability…or are on a path to go public, will see a strong demand and strong ability to do secondaries,” DC Advisory India chief executive Klaas Oskam told ET.

Going ahead, companies with strong unit economics will be looking to close secondary transactions in an attempt to clean up their capitalisation tables in the run up to potential initial public offerings, he said.

“It (the increase in secondary transactions) is also a function of a lot of investors wanting to participate in the long-term journey of a company. It’s not just about the exits for early investors. There is more confidence because of the ability of these companies to go for an IPO,” a senior partner at a Bengaluru-based venture capital firm said.


In 2024, secondary stake transactions that have concluded or are in the works included Temasek and Fidelity’s investment in Lenskart, TPG’s purchase of a stake in logistics startup Shadowfax, Peak XV Partners and Tiger Global’s potential investment in ecommerce firm Meesho, and Malabar Investments’ plan to pick a stake in beauty retailer Sugar Cosmetics, as reported by ET.

On July 1, beauty retailer Purplle closed a $120 million funding round — 70-80% of which was through secondary share sale — led by Abu Dhabi Investment Authority.

“We will see more funds focused on structured deals with a secondary component come up in India in the near future, so this kind of deals will likely increase … a well-functioning VC ecosystem needs a good secondary market, so this is a sign of maturity,” said Arpit Agarwal, partner at Bengaluru-based venture fund Blume Ventures.

Valuation corrections

As per the DC Advisory India report, external primary capital mainly came into deals sized in the $15-50 million range.

Exceptions to this included the large primary rounds at quick-commerce platform Zepto that closed a $665 million round last month; software firm Innovaccer, which is finalising a $250 million capital raise; and jewellery retailer BlueStone, which is stitching up a $100 million pre-IPO round (a mix of primary and secondary investments).

Oskam pointed out that companies that have turned a corner and have been able to achieve strong unit economics will be the ones to get attractive valuations in the private markets, albeit not as good as the buoyant public markets.

“While Indian public markets have reached record highs and continue to outperform global peers, private markets are undergoing a strategic reset with a key focus on long-term value creation,” he said.

Multiple new-age companies such as Byju’s, Elastic Run, ShareChat, Udaan and PharmEasy have seen significant downward revision of their valuations in recent months.

Going ahead, investors believe that there could be more correction in startup valuations, especially for the ones that have witnessed a hit to their growth in an effort to cut down on cash burn.

“There might be continued pain in the next six months for companies that are still burning or those that have addressed their burn by becoming zero-growth companies. There are quite a few companies in the category, where they have significantly reduced burn at the cost of growth,” a Gurugram-based investor said. “In our view, those companies will still take quite a while to grow into their valuations. Those are the companies that are still at a risk of a down round.”