Why Venture Capital Secondaries Are Becoming a Win-Win for Investors and Companies

Quick Summary

The global secondary market for private equity and venture capital reached a historic $240 billion in transaction volume in 2025 — a 48 percent year-over-year increase and the largest year on record. As limited partners grow increasingly impatient with paper returns and the IPO window remains narrow, secondary transactions have moved from a niche liquidity mechanism to a strategic pillar of modern venture portfolio management. For defense technology investors like Backswing Ventures, the secondary market presents an opportunity to put the right capital behind companies at precisely the right stage of their growth.

The Secondary Market Has Arrived

For much of its history, the venture capital secondary market was a place where early investors quietly exited positions that weren’t performing or where liquidity was needed in a pinch. That characterization is now changing.

According to Jefferies’ 2026 Global Secondary Market Review, in 2025, global secondary transaction volume reached $240 billion, a 48 percent year-over-year increase and the largest year ever recorded. Private secondary transactions, including structured tender offers and investor-led liquidity programs, have shifted from a niche mechanism to a strategic tool for venture investors, founders, employees, and other stakeholders.

“The secondary market has crossed a threshold,” says Kyle Asman, Founder and Managing Partner of Backswing Ventures, an Orlando-based defense technology venture capital firm. “It’s no longer a last resort. It’s becoming one of the most effective ways to align capital with where a company currently is in its development stages.”

A Liquidity Problem That Isn’t Going Away

The growth of the secondary market is, in part, a response to venture capital’s persistent need to close the gap between when capital is deployed and when it is returned.

The IPO window has remained largely closed, and M&A activity subdued, making secondaries a critical release valve for private market capital. The consequences have shown up starkly in the data. According to Carta, as of Q4 2025, the 90th percentile DPI for 2023 vintage venture funds stood at approximately 0.06x — meaning that even the best-performing funds in that cohort had returned only a small fraction of invested capital to limited partners.

“Limited partners don’t just want to see portfolio companies marked up on paper,” Asman explains. “They want to see realized, distributable returns. Returning capital to investors matters more than paper gains.”

Evergreen vehicles, which have emerged as the fastest-growing source of secondary capital, saw an estimated $113 billion of inflows in 2025, with over 40 percent allocated to secondaries. The trend signals that institutional investors are repositioning secondaries as a core component to their private market strategies.

How Secondary Transactions Benefit Companies

A secondary transaction allows an existing investor to sell all or part of their ownership in a private company to another investor, without requiring the company to issue new shares. This mechanism creates liquidity for early investors while leaving the company’s capital structure unchanged — no additional dilution, no new financing round, no disruption to operations.

In December 2025, Trade Republic, the Germany-based consumer financial services platform, completed a EUR 1.2 billion secondary transaction at a EUR 12.5 billion valuation, allowing early shareholders to realize liquidity while adjusting the investor base with long-term oriented capital. Platforms such as Nasdaq Private Market and Goldman Sachs Private Markets have helped institutionalize this process, building marketplaces where investors can access private company opportunities and transact more efficiently.

“A secondary transaction can bring in new long-term partners at exactly the right stage,” says Kyle Asman. “Rather than issuing additional equity, a company can welcome an investor who brings fresh resources, new strategic relationships, and a longer investment horizon.”

Secondary Transactions as a Strategic Tool

At Backswing Ventures, secondary transactions are treated as a deliberate strategic decision rather than an exit mechanism. The firm’s approach to selling a secondary position reflects a framework built around a company’s specific trajectory.

“Our decision to sell a secondary position depends on several factors,” says Asman. “When a company’s valuation begins to outpace its fundamentals, when growth starts to plateau and future value creation compresses, or when we believe we’ve maximized the value we can provide as investors.”

This philosophy reflects a broader maturation in how early-stage venture firms think about portfolio management. The role of an early investor is not meant to be permanent. Backswing Ventures focuses on helping defense technology companies navigate the specific complexities of government customers, connect with strategic partners, identify follow-on investors, and leverage relationships across the defense ecosystem. Those capabilities are most valuable at an early stage of a company’s development.

As companies mature, their needs evolve. Growth-stage companies often require larger capital commitments, access to new markets, strategic corporate relationships, and operational expertise. Those capabilities tend to come from later-stage investors, corporate venture groups, or investors experienced in preparing companies for acquisitions or public offerings.

“There’s a version of this where every investor holds every position indefinitely,” Asman notes. “But that’s not what creates value. The best outcome is matching the right investor to the right stage. A secondary transaction is an effective way to make that handoff.”

Defense Technology and the Secondary Market

The defense technology sector presents a distinct version of the secondary market dynamic. Government sales cycles are long, program adoption timelines are measured in years, and the path from early validation to a Program of Record requires sustained institutional patience. Early-stage defense venture capital firms like Backswing Ventures are designed to help companies navigate that early complexity.

According to Kyle Asman, secondary transactions have been central to the firm’s ability to deliver realized returns to limited partners ahead of the broader market. Backswing Ventures, recently announced that its Fund II has surpassed 1.0x DPI in under three years, 

“We believe DPI is the metric that matters most,” Asman says. “It answers the only question that ultimately matters: has this manager turned invested capital into cash back in investors’ hands?”

Looking Ahead

Jefferies projects that, based on backlog alone, the first half of 2026 should exceed $100 billion in secondary transaction volume, with a clear path toward $300 billion annual volume within 12 to 24 months.

Those numbers signal that the secondary market has staying power. It’s one of the most efficient tools venture capital firms have to balance the long-term nature of venture returns and the short-to-medium term liquidity expectations of many limited partners. As both sides of the market grow more sophisticated, the mechanics of secondary transactions will become increasingly refined.

“At its best, the secondary market isn’t about early investors leaving — it’s about bringing the right investors in at the right stage of a company’s growth,” says Kyle Asman, Founder and Managing Partner at Backswing Ventures. “That’s a win for the company, a win for the incoming investor, and a win for the LPs who get real capital back. The entire ecosystem becomes more efficient.”

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