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The secondary market is where existing shareholders of private, venture-backed companies, including employees, former employees, and early investors, sell their shares to investors in return for liquidity.

Unlike primary issuances, where the company receives the capital raised, secondary trades send the proceeds directly to the selling shareholder. These deals are often called pre-IPO trades, since they can align with the final private funding round before a company goes public.

Many technology companies are postponing their IPOs because of the high cost of going public and the pressure of short-term earnings expectations. As a result, venture-backed companies often reach valuations of $1B or even $10B before listing, which trims the upside left for public investors. In the late 1990s, tech companies usually went public within four years; today it takes more than a decade on average.

Early investors and employees at high-growth private companies may want liquidity for many reasons. A venture capital firm might aim to return capital to limited partners before launching a new fund, or an early employee might need cash for a major life event such as buying a home. These shareholders are often paper-rich but cash-poor, since their shares gain value yet stay illiquid.

A growing group of high-net-worth individuals, family offices, hedge funds, and sovereign wealth funds see the chance to invest in pre-IPO companies at reasonable valuations. They aim to capture value creation that once happened after a company went public but now occurs largely in the private markets.