Europe’s later-stage fintechs are increasingly opting to raise funding through secondary share sales — but not all companies wanting to sell can find buyers to buy.
In August, Revolut kicked off the secondaries fever by raising an employee share sale — a type of secondary deal which sees equity-holding employees cash in on their stocks — that secured the company a $45bn valuation.
Investment platform Moneybox and UK neobanks Monzo and Tide followed suit, also doing secondary transactions in recent months.
But market demand for secondary shares favours the larger and already profitable companies, meaning it isn’t a viable option for earlier-stage companies.
“The market only really starts once you’ve reached $50m annual recurring revenue,” says Alan Vaksman, founding partner of London-based secondaries firm Launchbay.
Misalignment between buyers and sellers on price per share is also common, meaning that even companies with significant revenues may struggle to sell shares at the desired valuation.
What’s behind the buzz?
Fintechs hitting profitability, along with early investors and employees wanting to liquidate their holdings, has created a perfect storm for secondaries, says Shing Lo, partner at law firm Latham & Watkins.
Monzo, Revolut and Starling all reported profitability this year. Others like BNPL lenders Klarna and Zilch and German neobank N26 aim to reach the milestone next year.
“One of the great things about secondaries is you can bring fresh investors onto the cap table,” she says. “Getting these new investors onto the cap table provides the validation needed, especially for some of these companies looking to potentially consider an IPO.”
As long as there’s market demand for a share selloff, fintechs can get employees and early investors off the cap table — who are more likely to sell in the event of a public listing and drag its price down — in favour of more mature long-term investors. In other words, it’s a perfect opportunity to clean up the table ahead of an exit and provide employees with a cash bonus even when IPO markets are on ice.
Moneybox’s October secondary share sale allowed crowdfund investors and employee shareholders to sell off their holdings to private equity fund Apis Partners and asset manager Amundi.
The scoop on secondaries
This year, secondaries-focused funds like Flywheel, Isomer Capital and LaunchBay have emerged to usher in fintech’s secondary era.
Sam Lawson, former Crowdcube exec and founder of secondaries-focused firm Flywheel Capital, and Launchbay’s Vaksman, say that the emergence of secondary funds comes hand in hand with many of Europe’s VC-backed businesses turning profitable. And that can be particularly seen in fintech.
“Secondaries are probably the only VC asset class which is now bigger than it was before the bubble,” says Lawson, noting that a similar recovery hasn’t happened yet for earlier stage fintechs.
And the data backs that up. According to Launchbay, there were 44 secondary transactions in European fintech in 2020 and 2021, compared to the 87 in 2023 and 2024 so far.
A grownup’s game
But secondaries aren’t for everyone. Typically, companies need to fit a certain profile: be profitable (or at least on the way) and be on the path towards high growth.
Flywheel’s Lawson says while it might be easy for profitable top-tier names like Monzo and Revolut to facilitate such transactions, other mid- to later-stage companies — which might still be unprofitable — are a harder sell. He says that there aren’t enough investors willing to take such high-risk positions in illiquid venture assets with no clear exit route.
And even for established companies, secondaries aren’t simple. In October, Reuters reported that payments fintech SumUp was exploring a share sale at a slight uplift to its current $8.5bn valuation. But the company is yet to proceed with the transaction, according to two sources with knowledge of the matter, with one implying that progress on the transaction has been slow due to a mismatch in expectations from buying and selling parties on price per share and a lack of demand. SumUp did not respond to Sifted’s request for comment.
The trickle-down effect
Still, fintech industry watchers say that secondaries will have a positive impact on the wider ecosystem in the long term. This year’s big-name secondaries have enabled equity-holding employees to cash in on their holdings, a move that may encourage them to make the well-trodden route of becoming entrepreneurs.
“From my perspective, we’re still continuing to work on quite a number of fintech funding rounds into fintech companies,” says Lo — including into companies founded by former employees of Europe’s fintech unicorns. (Monzo, Revolut, GoCardless and Klarna all have growing alumni-turned-founder networks.)
Secondaries action is spreading to other sectors too; Launchbay’s Vaksman and Flywheel’s Lawson think B2B SaaS and AI are the next frontier for secondaries. Data collected by Sifted suggests there have already been 15 secondary transactions across these verticals this year.
“I think fintech is leading forward, just because that’s where most of the great high-value companies in Europe are today,” says Flywheel’s Lawson. “But I think over time, we’re seeing a lot of green shoots in green energy, in healthcare and in AI as well — we’ll see more breadth in terms of secondary activity going forward.”
Read the orginal article: https://sifted.eu/articles/fintech-secondary-sale-latest/
