Secondary market trackers are lighting up a traditionally dark deal environment

As many private companies try to avoid raising capital in the current market, it’s become significantly harder to figure out what companies are actually worth. But a market that’s traditionally even less transparent than venture is providing clues.

The secondary market, where investors can buy and sell existing stakes in a startup or fund, offers a more fluid way to tell how buyers and sellers are valuing companies between formal funding rounds. These deals were traditionally harder to track than primary venture capital deals, as they don’t generally get announced, but a new fleet of startups is shining light on them.

Over the past few years, multiple startups including Caplight and Notice have launched products that track both completed secondary deals as well as bids from buyers and sellers, offering users a real-time view of how investors are valuing companies. Others including Birel and Hiive Markets look to make it easier to trade secondary stakes.

Caplight’s co-founder and CEO, Javier Avalos, told TechCrunch+ earlier this year that he was inspired to build his company because he felt the lack of transparency in the market prevented institutional investors from being able to properly hedge bets in the space or accurately protect against downside risk.

Tyson Hendricksen said he launched Notice in 2021 because he felt the industry he had worked as a broker in for years wasn’t accessible enough to all of the underlying stakeholders it affected — specifically, company employees with stock options.

“I was so appalled at how fragmented and busted the data was, even as a broker who was active every day,” he told TechCrunch+. “It was really hard to figure out what was going on. That was my job. For anyone else who had a half-an-hour lunch break and wanted to figure out if they wanted to sell their shares or not, it was really hard.”

Access to this data would be helpful in any market conditions, but it’s especially critical now: The muted exit environment and quiet late-stage funding market has left investors and startup employees with very few public data points and almost zero view of how some of these later-stage companies should be valued.

Secondary data can help prevent investors from paying more than other backers for the same company stake. It also provides some information that former and current startup employees might need to figure out how to price their employee stock options and whether the price is worth the hassle and cost of selling.

“That has become a lot more important,” Hendricksen said. “Things are down, but down by how much? Employees don’t know how to price things. It’s really difficult to do something.”

Having access to this type of data may also help drum up some investment activity into late-stage companies, said John Avirett, a partner at investment firm StepStone.

Many mature startups are solid businesses but are just too expensive, and secondary trading data gives investors an idea of how other stakeholders are valuing the company.

“In a world where the last-round valuations are more broadly seen as not as relevant to what they were because companies have not grown, the importance of folks understanding what intrinsic value could look like in these situations has become more important as investors buy secondaries,” Avirett said.

Plus, companies can use this data to gauge what investors might value them at if they do decide to go out for a formal raise or an exit event.

Avirett cautioned that although having access to information like the bid and ask spread and closed deal information — the main data points many of these startups track — does provide a good basis, it doesn’t always provide enough to make an informed investment decision.

He added that you still would be taking a gamble on what capital stack or potential liquidation preferences a company has. Hendricksen said Notice is working on trying to shed light on some of those areas, too.

For now, as the exit market stays quiet and late-stage funding lays largely idle, these secondary tracking startups offer insight into what’s happening at these venture-backed companies. Without them, the market would be left almost fully in the dark.