Startup valuations often remain tied to the last funding round, even when market conditions and investor expectations change. New academic research suggests that secondary market transactions can offer valuable insights into what venture-backed companies may actually be worth.

The Problem with Yesterday’s Valuation

A startup raises EUR 100 million at a valuation of EUR 500 million. The funding round closes, and the valuation becomes an established reference point. It appears in investor presentations, portfolio reports and financial discussions.

Twelve months later, that number may remain unchanged, even though the economic circumstances behind it have shifted considerably. Perhaps the company has exceeded its growth targets. Meanwhile, competitors may have struggled to secure funding. Public market valuations may have declined, or investors may have become more cautious about deploying capital.

Yet none of these developments necessarily triggers a new financing round. As a result, investors may continue to reference an outdated valuation despite changing market conditions. This is not inherently a flaw in private market investing. Venture capital managers use established valuation methodologies, financial performance indicators and comparable transactions to assess portfolio companies between financing rounds.

Nevertheless, a historical funding valuation does not necessarily reflect what another investor would pay for an existing ownership interest today. This distinction is becoming increasingly important as venture-backed companies remain privately held for longer.

In our previous article, The Private Markets Liquidity Paradox: A Booming Secondary Market, But for Whom?, we examined why growing secondary market volumes do not automatically translate into broader liquidity.

However, the development of secondary markets raises another important question: Can actual transactions provide better information about the value of private investments?

What Secondary Markets Reveal About Startup Valuations

New research from Vanderbilt University suggests that they can.

In their May 2026 working paper, Secondary Markets for VC-Backed Startup Equity, Daniel Bias, Johan Cassel and Berk A. Sensoy examine proprietary transaction data. The data comes from a major intermediary in the secondary market for venture-backed company shares. Their findings show how secondary prices respond to changing market conditions. They also examine how these prices relate to valuations in subsequent venture capital financing rounds.

The researchers find that shares in venture-backed companies typically trade at discounts to previous funding-round valuations. However, these discounts are not static. They tend to narrow when buyer demand strengthens. This suggests that secondary pricing responds to market conditions rather than applying a fixed reduction to the last reported valuation.

Moreover, the study shows that secondary market activity reacts to new information. Both investor order flow and prices respond to venture capital financing events. This suggests that market participants continuously reassess their expectations as new information becomes available. Perhaps the most significant finding concerns the relationship between secondary prices and future financing rounds.

The researchers find that secondary market prices contain information that helps predict valuations in subsequent venture capital financing rounds. They also observe that mutual funds holding startup equity partially incorporate these pricing signals into their portfolio valuations. These findings challenge the traditional perception of secondary markets as mechanisms primarily designed to provide liquidity.

Although transferring existing ownership remains their immediate function, secondary transactions can also contribute to price discovery. This is particularly relevant in an asset class where observable pricing events have historically been infrequent. For venture capital investors, the implications are substantial.

A secondary transaction does more than indicate that someone wanted to sell an investment. It also provides evidence of what another investor was prepared to pay for an existing stake under specific market conditions.

Why Secondary Market Discounts Do Not Necessarily Indicate Overvaluation

Secondary shares frequently trade below previous funding-round valuations. This observation invites an obvious interpretation: perhaps startups are simply overvalued during primary financing rounds.

However, such a conclusion overlooks important differences between primary and secondary transactions. A financing round typically involves newly issued shares. These may include preferential rights, liquidation protections or governance provisions negotiated during the investment.

In contrast, secondary transactions involve existing shares, which may carry different economic rights and transfer restrictions. Therefore, comparing the two prices without considering these differences can be misleading. Transaction circumstances also matter.

An investor may seek liquidity for portfolio diversification, strategic repositioning or an immediate capital requirement. Consequently, that investor may accept a price that another shareholder would reject. Meanwhile, buyers must consider information asymmetries, uncertain exit horizons and the possibility of lower valuations in future financing rounds. A discount can therefore reflect several factors. These include liquidity costs, differences in shareholder rights, changing expectations and the negotiating positions of buyers and sellers.

Additional research provides a complementary perspective. In October 2026, Greg Brown and William Volckmann of the Institute for Private Capital published Private Equity Secondary Pricing: Understanding the Current Market. Their study examines almost 3,000 pricing observations for private equity buyout fund interests between 2015 and 2025. The researchers find that secondary prices averaged approximately 8% below reported net asset value. Furthermore, these discounts were closely linked to broader public equity market developments.

Although this research focuses on private equity fund interests rather than direct venture-backed company shares, it reinforces an important principle. A difference between a reported valuation and an observable transaction price does not automatically mean that one of them is wrong. Instead, investors should examine which economic factors explain the difference and what information each valuation represents.

A secondary discount should therefore not automatically be interpreted as a correction of an inflated startup valuation. Rather, it is a market signal. Its significance depends on the underlying transaction, the characteristics of the shares and the circumstances in which buyers and sellers reach an agreement.

The Uncomfortable Consequences of Better Price Discovery

Greater transparency in secondary market pricing could benefit venture capital managers, institutional investors and family offices.

Observable market transactions provide an additional reference point for assessing existing holdings, evaluating prospective investments and reviewing portfolio valuations. They can also help investors distinguish between historical financing benchmarks and current market expectations without replacing established valuation methodologies.

However, improved price discovery also introduces a less comfortable dimension to private market investing. A company may continue reporting a valuation established during its last funding round. Meanwhile, secondary market participants may express materially different expectations through their bids and transactions.

Such discrepancies do not necessarily invalidate the reported valuation. After all, transaction circumstances and shareholder rights may differ. Nevertheless, recurring secondary transactions at significantly different prices may warrant closer examination.

This creates an interesting tension. Unlike publicly traded securities, private market portfolio valuations are not continuously exposed to daily market fluctuations. That relative stability can support long-term investment strategies. This is particularly relevant when short-term market sentiment has limited significance for a company’s underlying development.

Yet stability in reported valuations should not be confused with stability in economic value. Market expectations can change regardless of how frequently an asset receives a formal valuation. More developed secondary markets may simply make those changes visible sooner. Therefore, better price discovery does not necessarily produce higher or more attractive valuations.

Instead, it introduces additional evidence against which investors can assess existing assumptions.

Some evidence may confirm prevailing expectations. Other evidence may challenge them. Both outcomes can help investors better understand the risks and economic value of their portfolios.

From Periodic Valuations to Better Market Information

Private markets are still far from the continuous price discovery mechanisms of public stock exchanges.

Venture-backed company shares remain subject to ownership restrictions, uneven information availability and relatively limited trading activity. Moreover, transactions may concentrate among a small number of prominent companies. Less established businesses, meanwhile, may continue to attract little secondary market interest.

A single transaction may also provide limited information about the value of an entire company. For example, the price of a minority holding may reflect circumstances that do not apply to other shareholders. Similarly, negotiated prices may not represent the terms available to the wider market.

The Vanderbilt study itself remains a working paper based on proprietary intermediary data. Therefore, its findings should not automatically be applied to every segment of venture capital. Nevertheless, the research points towards an important development.

As secondary markets expand, investors may gain access to more observable pricing signals between traditional financing events. These signals can complement financial models, company performance indicators and comparable market data. Together, they may improve the information available for investment and portfolio management decisions. Valuation benchmarks such as DealMatrix Multiples can provide additional context. The platform offers EV/Sales and EV/EBITDA multiples across industries, company stages and regions, complementing secondary market pricing signals when assessing private company valuations.

Importantly, better market information benefits more than investors seeking an exit. A venture capital fund planning to hold an investment for several more years may still benefit from understanding how other market participants assess that asset. Similarly, institutional investors evaluating private market allocations may use secondary prices to better interpret reported portfolio valuations. However, the distinction between liquidity and price discovery remains essential.

Liquidity concerns the practical ability to buy or sell an investment. Price discovery, by contrast, concerns the information that market activity generates about its value. Although these functions are connected, they are not interchangeable.

Even markets with relatively limited trading volumes may produce useful price signals. However, the reliability of those signals depends on the quality, frequency and representativeness of the underlying transactions.

A Market That Reveals More Than Exit Opportunities

Secondary markets are frequently presented as a solution to one of private investing’s most persistent challenges: converting ownership interests into cash before a final exit.

This remains an important function, particularly as companies stay privately held for longer and investors face changing portfolio requirements. However, emerging research suggests that secondary markets may contribute something equally valuable: a more informed understanding of private company valuations.

The Vanderbilt findings indicate that secondary prices respond to new information. They also contain signals about subsequent venture capital financing valuations. This does not make secondary prices inherently more accurate than other valuation approaches. Nor does it eliminate the uncertainty surrounding investments whose future performance remains difficult to predict.

Nevertheless, secondary market transactions introduce another observable dimension into private market valuations. Traditionally, investors have relied heavily on periodic financing events and valuation models. For private market investors, the implications extend beyond the ability to sell. More accessible and informative secondary markets could improve how investors evaluate investments, understand risks and make portfolio decisions.

The next stage of secondary market development may therefore be measured by more than the amount of capital changing hands. Equally important is how much useful information those transactions generate.

After all, knowing what an investment was worth at the last funding round is one thing. Understanding what the market is prepared to pay for it today is quite another.

References

Academic Research

Bias, D., Cassel, J., & Sensoy, B. A. (2026). Secondary Markets for VC-Backed Startup Equity. Vanderbilt University, Working Paper, 11 May 2026. Read research.

Brown, G., & Volckmann, W. (2026). Private Equity Secondary Pricing: Understanding the Current Market. Institute for Private Capital, 5 October 2026. Read research.