Primary rounds sell the story but secondaries reveal the price investors are actually willing to pay when liquidity, risk, and time horizons enter the equation. Secondaries are now VC’s real price discovery engine.

The Secondary Market Is the Real Price Discovery Engine Now

The recent IPO of Cerebras Systems was a welcome development for an industry that has spent the better part of three years waiting for the public markets to reopen. The deal priced above its initial range, demand was robust, and for a brief moment the venture ecosystem was able to convince itself that the exit environment had normalized. But one successful IPO does not change the underlying structure of the market.

The backlog of venture-backed companies still seeking liquidity remains enormous. According to the latest PitchBook-NVCA Venture Monitor, VC-backed IPO activity remains materially below historical averages despite modest improvement in 2026. Companies are staying private longer, capital is remaining locked up for extended periods, and traditional price discovery mechanisms have become increasingly distorted.

That distortion has created a new reality in venture capital: primary rounds increasingly communicate narrative, while secondary transactions often provide a clearer signal of underlying market value.

Primary Valuations Have Become Increasingly Imperfect Signals

To be clear, this is not an argument that primary rounds are meaningless. They remain critically important. Companies need capital to scale. Lead investors still need to perform diligence, negotiate governance rights, and establish strategic signaling effects for the broader market.

But primary valuations today are often influenced by factors that make them imperfect indicators of underlying equity value.

Structure matters. Liquidation preferences matter. Participation rights matter. Strategic investor motivations matter. AI exposure matters. Momentum matters. In some cases, fundraising itself becomes part of the company’s go-to-market strategy.

A $12 billion post-money valuation may represent genuine conviction. It may also reflect scarcity dynamics, investor FOMO, downside protection provisions, or a desire by existing investors to avoid a markdown event. Secondary transactions strip much of that away.

When existing common shares trade hands between informed buyers and motivated sellers, often with fewer signaling incentives embedded in the transaction, the resulting price often provides a clearer indication of how the market actually values the company. That distinction has become increasingly important as private markets have matured into quasi-public ecosystems.

The Secondary Market Has Quietly Become Core Infrastructure

Over the last two decades, the secondary market has evolved from a niche liquidity mechanism into a foundational layer of the venture capital ecosystem. In the early 2000s, secondary transactions were often viewed with suspicion inside Silicon Valley. They were opaque, highly relationship-driven, and frequently associated with distressed sellers, departing founders, or funds quietly cleaning up portfolio problems away from public view. The market itself was small and fragmented, dominated by a handful of specialist firms such as Industry Ventures, along with early dedicated secondary players like W Capital Partners. These firms operated in corners of the market that many traditional venture investors barely paid attention to.

That dynamic has changed dramatically. As companies began staying private longer and private market valuations expanded into the tens of billions, secondary specialists moved from the periphery to the center of venture finance. What was once viewed as a niche corner of venture finance is now considered essential market infrastructure. Today, major crossover funds, sovereign wealth funds, institutional LPs, family offices, and even company insiders actively participate in structured tender offers and large-scale secondary transactions. Dedicated platforms such as Forge Global and EquityZen have further institutionalized the market, bringing greater transparency, standardized processes, and broader participation to an asset class that once operated largely through private phone calls and tightly controlled networks.

Carta estimated that secondary transaction volume reached approximately $61 billion over the 12 months ending mid-2025, exceeding the combined value of VC-backed IPOs during the same period.

At the broader private equity and venture level, Lazard estimated global secondary market volume reached $233 billion in 2025, up 53% year-over-year. Those are no longer edge-case numbers.

Meanwhile, tender offers have become increasingly common among late-stage technology companies. Carta reported nearly 400 tender offers on its platform in 2025 alone.

This trend reflects a simple reality: companies are remaining private far longer than the venture industry was originally designed to accommodate.

Twenty years ago, many category-defining technology companies accessed public markets relatively early in their growth trajectories. Today, firms like Stripe, SpaceX, Databricks, and OpenAI have achieved extraordinary scale while remaining private.

As companies defer IPOs, the need for internal liquidity mechanisms naturally increases. Employees want diversification. Early investors need DPI. Founders seek estate planning flexibility. New investors want exposure to category leaders that may not reach public markets for years.

The result is that secondary markets are increasingly functioning as the de facto exchange layer for private technology assets.

Secondary Pricing Reveals What Primary Markets Often Obscure

Secondary activity provides insight into several areas that primary financings frequently mask.

First, secondaries reveal actual liquidity demand. Who is selling matters. An early employee seeking financial diversification communicates something very different from a crossover fund aggressively reducing exposure. Founder participation, investor participation, and employee participation all carry informational value.

Second, secondaries expose duration risk. A meaningful discount to the last preferred round often reflects more than skepticism around company quality. Buyers are pricing illiquidity, governance complexity, transfer restrictions, information asymmetry, and uncertainty around exit timing. In many cases, those discounts reflect liquidity and duration considerations more than fundamental skepticism around the business itself.

Third, secondaries provide a useful mechanism for evaluating the credibility of existing marks. If a company last raised capital at a $15 billion valuation but significant blocks of common equity consistently transact materially below that level, investors should pay attention. That does not necessarily mean the prior valuation was wrong. (Preferred securities and common shares are fundamentally different instruments.) But it does suggest the market is expressing a more nuanced view than headline valuation figures imply.

This dynamic has become particularly relevant in the AI sector. Over the last several years, this dynamic has appeared repeatedly across late-stage software and AI companies, where employee liquidity programs and secondary transactions often cleared at discounts to the most recent preferred financing despite continued headline valuation increases. In many cases, the gap reflected duration risk and liquidity constraints more than skepticism around the underlying business. But the pricing gap itself was informative

AI Has Amplified the Gap Between Narrative and Clearing Price

AI remains the dominant capital formation story in technology today. In several cases, the premium is entirely justified. The combination of infrastructure scarcity, model scale advantages, and enterprise adoption velocity has created genuinely exceptional businesses.

Certain companies are building seriously durable infrastructure businesses with meaningful technical differentiation, data advantages, distribution leverage, and platform potential. But the broader market has also experienced substantial valuation inflation tied to AI exposure broadly defined.

Carta data showed that AI startups commanded significant valuation premiums relative to non-AI peers throughout 2025, including at late-stage financings.

The challenge for investors is separating durable value creation from narrative momentum. Secondary markets help provide that signal.

Sophisticated secondary buyers increasingly evaluate private technology companies with frameworks that resemble public market investing or credit underwriting more than traditional venture underwriting. They analyze burn efficiency, capital stack complexity, governance rights, competitive durability, expected liquidity timelines, and the probability-weighted value of future exit scenarios. That discipline matters in an environment where headline pricing alone often tells an incomplete story.

Increasingly, the skill set resembles hybrid public-private investing. Understanding governance rights, liquidity waterfalls, dilution dynamics, and duration exposure matters as much as understanding product-market fit.

LPs Should Spend More Time Studying the Secondary Tape

Limited partners evaluating venture portfolios should increasingly focus on secondary market activity as an important validation layer.

Questions worth asking include:

• Where have comparable secondary transactions recently cleared?
• What discounts or premiums exist relative to the last primary round?
• Are insiders participating in liquidity programs?
• Are transactions occurring in isolated pockets or at meaningful scale?
• How much structure existed in the prior financing round?
• Would current secondary pricing materially alter reported NAV assumptions?

These are not academic questions. As companies remain private longer, the informational value of secondary activity will continue to increase. In many cases, secondaries now represent the closest equivalent private markets have to continuous price discovery.

USV’s Fred Wilson wrote several years ago that secondary liquidity would become an increasingly important component of the venture ecosystem as companies delayed IPOs and remained private at larger scale. That observation has aged exceptionally well.

Final Word

For much of the last decade, venture capital operated in an environment where primary rounds dominated industry perception. Headline valuations became shorthand for company quality. Fund marks rose rapidly. Liquidity timelines expanded. But markets eventually demand mechanisms for truth-telling.

Today, that mechanism increasingly lives in the secondary market. Secondary pricing incorporates liquidity risk, duration risk, governance friction, information asymmetry, and actual buyer appetite in ways primary rounds often do not. It is not perfect. No market is. But it is increasingly the most informative pricing layer available inside private technology investing.

As it appears likely in the wake of the Cerebras debut, the IPO market may reopen further from here. More companies will eventually list. Some will perform exceptionally well. But until liquidity normalizes at scale, investors who ignore secondary market signals are operating with incomplete information.

In venture capital, pricing opacity has historically been tolerated because liquidity eventually resolved the debate. In a market where companies remain private for a decade or longer, that opacity becomes materially more dangerous. Increasingly, the secondary market is where that price discovery occurs.

***Jonathan Tower has been a global venture investor for over 20 years, having managed more than $5 Billion in AUM, invested in more than 85 companies, and seeded 9 companies that went on to become unicorns across three core investment themes: consumer (marketplaces, ecommerce enablement, digitally native brands), enterprise (software, services, infrastructure, storage, data orchestration) and frontier technologies* (AI/ML, IoT, robotics, Fintech, etc).

Jonathan’s direct investments have resulted in more than $10 Billion in exits, including early bets in Jet.com (acquired by Walmart for $3.5 Billion), Dollar Shave Club (acquired by Unilever for $1 Billion), Freshly (acquired by Nestle for $1.5 Billion), IfOnly (acquired by Mastercard), InsideView (acquired by Demandbase), and MapR Technologies (acquired by HP). Other notable investments, which Jonathan led or helped champion, include Groq (acquired by Nvidia for $20 Billion), Hammerspace, Cohere, TogetherAI, Snorkel AI, Jeeves, SingleStore, Artera, Cart.com, Madison Reed, Qumulo, and many other companies that have gone on to become market leaders.

Jonathan writes frequently on venture capital and technology topics on his blog, Adventure Capitalist, and he’s been a frequent contributor to The New York Times, Fortune, The Wall Street Journal, FastCompany, Forbes, The Washington Post, The LA Times, and other leading publications.

X: @jonathan_tower; instagram: jonathan_tower