Secondaries transactions in venture are a “win-win” right now, according to Jihan Bowes-Little, co-founder and managing partner at Bracket Capital.
“There’s a huge focus on secondaries for us, we think it’s probably the best win-win in private markets right now,” Bowes-Little said.
The secondaries market has grown wildly over the past year, with the world’s largest private equity firms raising large amounts of capital for secondaries-specific strategies, such as Blackstone’s GP-led secondaries fund and Apollo’s recent foray into private debt secondaries.
As companies have remained private longer, secondaries have grown, providing liquidity for the LPs. There are some large managers with secondaries-specific strategies, such as Industry Ventures, and Bowes-Little saw this as an opportunity for Bracket.
“Coming into this market, it was not obvious to us why 99 percent of venture capital dollars were focused on the same companies at the same time,” Bowes-Little said. “From a competition standpoint, that seems an odd decision to make, as it’s not how any other asset class works.”
Bracket’s position in the market and focus on secondaries is due partly to the background of its employees, and partly to the state of the market. Many at Bracket come from a hedge fund background, making them partial to tracking metrics, such as optimizing liquidity, maximizing IRR and maximizing the potential for exits after large institutional round, according to Yalda Aoukar, co-founder and managing partner at Bracket Capital. Plus, as deal values have soared in recent years, big VC investors aren’t as interested in these typically smaller transactions.
“Because of [the secondaries’ markets] size, it’s not overcrowded by the big names in venture,” Aoukar added. “So, we kind of found our sweet spot with the secondaries market and have been able to build a reputation a leader in this space.”
Bracket invests in growth and later-stage tech companies via primary funding rounds and secondary market purchases from employees and early investors who are seeking liquidity. The firm recently raised $450 million in equity, including $150 million for its second fund, exceeding its original $100 million target, as well as an additional $300 million in co-investment vehicles to invest alongside Fund II.
But as the secondaries market grows and other market strategies, such as SPACs or PIPE deals, provide further market options, the firm hopes to be a vanguard of secondaries when the market eventually overcomes its primary counterpart.
“It’s not impossible that we would even begin to participate in PIPEs or SPACs ourselves, and I think that we like this idea that themes that were formerly binary are blurring,” Bowes Little said. “We at Bracket hope to exist at the intersection of some of those blurring of the lines.”