Auren Hoffman makes the case for VCs selling to secondary buyers: "A Second(ary) Chance for Venture Capital."
Jason Mendelson counters with "Should Venture Capitalists Sell Out to Secondary Firms."
I generally agree with Hoffman, but Mendelson makes some good points - I just think his perspective is overly optimistic about LP's patience with long-term illiquid investments. It would be nice if the world worked
To try and better understand Hoffman's point, think of VCs selling to public markets (or strategic buyers) instead of to secondary private equity markets. It seems like all of his arguments apply to those situations as well. So why do VCs ever sell? Because they are under pressure, fairly or unfairly, from LPs to deliver actual cash, not make-believe "valuations." I wish the world worked according to Mendelson's desires (and for a long time it did), unfortunately, I think VCs will be put under increasing pressure to sell out earlier on - and secondary funds will be there to buy some of those shares.
There is nothing necessarily magical about a traditional exit like an IPO or acquisition, adding exits to secondary funds will provide another useful alternative - something VCs and entrepreneurs desparately need right now.
Bottom line: more and more investors are going to consider 10 yrs just too long a time period, secondary markets will emerge as a response to this. Whether or not this will be good for the portfolio companies involved remains to be seen.
