A few months ago, it looked like all the pieces had fallen into place for a hot secondaries summer: Buyers were coming back to market, some companies and sellers were getting desperate, and the bid-ask spread — the difference of what buyers are willing to pay and the price sellers are setting — was tightening.
Tiger Global’s recent secondary deal, in which it sold its stake in Indian e-commerce giant Flipkart to Walmart for $1.4 billion, shows that the market has started moving. But this transaction shouldn’t be taken as a bellwether of what’s ahead for venture’s secondary market this year.
To recap, Walmart is already a majority shareholder in Flipkart, and this new deal valued the online marketplace at $35 billion, a minor 7% valuation haircut from its last publicly announced valuation of $37.6 billion.
Tiger Global had invested a total of $1.2 billion in Flipkart over multiple funding rounds since 2010, according to TechCrunch reporting. It sold off a bunch of its shares over time to net a collective $3.5 billion return, which is not a bad payout by any standards.
Tiger Global declined to comment. A Walmart spokesperson said, “We value Tiger Global’s involvement and support over the last several years. We remain confident in the future of Flipkart and are even more positive about the opportunity in India today than when we first invested.”
Sure, one could argue — rightly so — that this deal is a little outside the venture market, considering Flipkart has been majorly owned by Walmart since 2018. But, Tiger Global has been shopping around a lot of its venture stakes, too — which could include companies like Brex, Chime and Databricks — and I think it’s good to mull over why the investment firm likely won’t get a similar deal for its venture stakes.
Let’s talk about the price for a second. Flipkart’s new $35 billion valuation is notable, given how far valuations have fallen over the past year. Either Walmart’s M&A team isn’t that great at bargaining — they kind of have a lot of leverage here when you think about it — or it’s evidence that Walmart feels building its stake in Flipkart is really worth shelling out for.
When I spoke to multiple secondary investors a few months ago about activity picking up, they said it was not because buyers were willing to pay more, but rather that sellers were finally coming down to prices that buyers could stomach.
Considering how some of Tiger’s stakes in its other portfolio companies are currently trading on the secondary market, that latter argument looks more likely.
Tiger invested in Brex’s 2021 $300 million Series D round at a $12 billion pre-money valuation. According to secondary data platform Caplight, Brex’s latest secondary deal was in January 2023 at a $6.3 valuation, half the size of its last primary round. According to the latest data, the most recent bidder was looking to come in at a $3.3 billion valuation.
If Tiger sold at or around that price, it would be looking at a 72% valuation decline — that’s a fair bit more than 7%.
So while this deal doesn’t reveal anything about startup valuations or what secondary activity will look like in terms of the capital involved, it does tell us how secondary buyers might behave this year: We’ll likely see a lot of investors looking to build their stakes in their portfolio companies now that valuations have dropped.
This makes sense for a few reasons. For one, the boom times of 2021 got traditionally primary-market-focused VCs comfortable with the secondary market as they tried to get into hot deals any way they could. Plus, as I’ve said before, most of these frozen late-stage startups aren’t bad companies; they’re just overvalued, so getting in or adding to an existing stake makes a lot of sense right now.
Also, there isn’t a more attractive place for late-stage VCs to park their capital at the moment. Firms have dry powder lying around, and the valuations on the primary market for many late-stage startups simply don’t look great.
If the choice is between a secondary deal or a primary stake in a company at an inflated valuation, why wouldn’t you shop for cheaper, better assets?
A lot of these companies are also rumored to be among the first in line to go public when the IPO market starts back up. So while these conditions don’t look great for sellers like Tiger, VCs should pay attention and jump in where they can.
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