Venture capital funds’ limited partners selling their investment stakes to other LPs on the secondary market is a common practice. Traditionally, these transactions occur offline through brokers, resulting in costly fees and barriers for certain LPs. However, Palico aims to revolutionize this process.
Palico, based in Paris, recently obtained approval from FINRA to become the first company to conduct LP secondaries transactions online through an electronic trading system. This approval could significantly impact the LP-led secondaries market by providing liquidity sources as companies remain private for longer durations and small LPs struggle to access brokers.
Functioning as a marketplace, Palico allows LPs to sell individual fund stakes or a bundle of stakes from various funds by uploading relevant information in a data room. Buyers can then request access to the data room and initiate discussions with the seller.
Christopher Jeffery, a general manager at Palico, revealed that the platform was developed over two years, initially serving as a connection point for sellers and buyers before offline deals. The platform is expected to enable direct purchasing by the end of the summer, offering standard deal terms for transactions while allowing LPs flexibility.
Amidst the rapid growth of venture secondaries, Palico’s emergence marks a crucial development in the market. With LPs seeking liquidity due to prolonged company holdings by venture capital firms, the platform provides a vital solution for sellers and buyers.
The evolution of the venture capital landscape has led to the rise of micro and emerging VCs, altering the dynamics of LP and GP interactions. Palico addresses the needs of smaller LPs who often face challenges in collaborating with secondaries brokers, offering a cost-effective solution for trading smaller stakes.
As Palico pioneers online LP secondaries transactions, other startups are expected to follow suit. However, the complexity of pricing LP secondary stakes presents a challenge, making Palico’s innovative approach crucial in meeting market demands.
With LP-led secondaries gaining traction and liquidity concerns prevailing, Palico is well-positioned to cater to the market’s evolving needs and facilitate growth in the secondaries space.
