The secondary market is filling a funding gap and changing Indian venture capital for the better

A venture investor who puts money into a young company can get it back in three ways: by selling its shares to another investor, when the company lists on public markets, or when it's sold. A venture fund's returns, ability to raise the next fund, and money it can put back into the next set of founders all depend on one of these three things happening consistently, and at scale.

For most of India's startup history, only IPO was available in practice. Over the last 3-4 yrs, private secondary market has become fairly deep and is changing how VC operates.

India has never been a large market for M&A. In 2025, US venture-backed companies saw about 1,000 acquisitions against 48 public listings. In India, acquisitions have historically made up a small fraction of exits. While strategic sales did rise sharply in 2025 and crossed $1 bn, they started from about $65 mn the year before. India's large listed companies have not needed to buy growth the way US tech companies do. Global buyers are only now starting to look seriously at Indian software businesses.


For M&A to work as an exit route, the acquirer must be of a certain size. India has had buyers of that size in only a few places - consumer brands and ITeS, for instance. What's new is that startups themselves are becoming large enough to be acquirers, as Zomato's purchase of Blinkit, and Groww's purchase of Fisdom, show. That will build over time. For now, an early-stage investor here can't plan on an acquisition as way out with a degree of certainty. So, the public market has carried almost the entire load.

Indian IPOs raised a record ₹1.95 tn (about $23 bn) in 2025, up from about ₹1.6 tn in 2024, and a deep pipeline of venture-backed companies is waiting to list. The public market is open. But the bar to list is rising every year. Size of an issue has to be large enough for institutional investors to pay attention.

Above $100 mn IPOs accounted for nearly 90% of all venture exit value in 2025, up from about 70% in 2024. Public investors are rewarding scale, governance and visible earnings. But there's a gap. A good company that's 4 yrs away from being ready to list still has early investors who came in 7-8 yrs ago and need to return money to their own backers. The company itself often needs a different kind of shareholder for its next phase. Something has to happen in between.

Private secondary market fills this gap. In a secondary transaction, an existing shareholder sells its stake to another investor, existing or new, and no fresh capital goes into the company. Structured right, it's a win for everyone: early investor who took the risk gets liquidity; new investor gets a mature business at a stage that suits it, and takes a 4-5-yr view on it; and company gets a shareholder suited to its next phase.

Secondary market isn't as deep as IPO market yet. But the distance is smaller than people assume, and the two are increasingly linked. Globally, secondary market reached a record $240 bn in transaction volume in 2025, which gives a sense of how large this route can become as a market matures.

A large part of activity now happens after a company lists, in the block market, where public funds that have followed a business for 2-3 yrs are natural buyers of stakes that early investors still hold. 3 things have changed in the last few years to make this possible:

Buyers In 2020 and 2021, the most active were US hedge funds and crossover investors. When they stepped back, sovereign funds and the growth arms of PE firms took their place, then domestic institutions, family offices and dedicated secondary funds. Every pool of capital has a different appetite for risk. Different pools have led at different points. But there has always been a buyer. That's what market depth means.

Founders 3-4 yrs ago, a conversation about an early investor selling was a hard one. Today, most founders understand what incoming investors look for, and can see that a mature investor will drive the plan towards a listing. The process is still demanding, as it carries the same diligence as a primary round and sellers have to act together. But the conversation has changed.

Public market A record year for IPOs means buyers of secondaries can underwrite a listing 3-4 yrs out with real confidence. That's what they underwrite, not an acquisition. So, they look for market leadership, a large addressable market, and a business at, or close to, profitability. Closer the listing, larger and more institutional the buyer.

An Indian fund typically has 4-5 assets of scale. Only a handful of buyers exist for such packages. So, the discount they demand is steep, the process taking most of a year. None of this replaces the public market. It prepares companies for it, so that a business arrives on the exchange with long-term shareholders it'll need as a public company. Its early investors have already been paid for the risk they took.

The writer is MD, Lightspeed, India