Happy Wednesday. Here’s what we’ve got today…

• A look at the venture secondary market with Industry Ventures’ founder and CEO Hans Swildens

• Plus, Bain approaches Envestnet

Industry Ventures’ Hans Swildens on the state of the secondary market:

by Bob Clair

As more traditional exit avenues have dried up, shareholders of venture-backed startups, limited partners, and fund managers are increasingly turning to the secondary market as a tool for interim liquidity. That’s meant a perfect setup for venture secondaries funds, which have been enjoying a golden age of their own (to borrow a phrase from private credit’s ascendancy).

Hans Swildens, the founder and CEO of Industry Ventures, predicts this year’s secondaries transaction volume will surpass even 2023, which was itself a record year.

Swildens expects the growth trajectory to continue, and he’s well-positioned after raising a new $1.45 billion fund last September, the largest ever at the time (StepStone Group took top spot after raising its own $3.3 billion fund last month).

“I think the next three years are going to keep compounding on each other because the secondary market is a derivative of the primary market, and the primary market expanded so dramatically in the last ten years that now you’re seeing less liquidity,” he said. “I think this year will end up bigger than last year, and next year will be bigger than this year."

Swildens thinks secondaries have now jumped from a niche asset class to something that most investors fully understand.

“The secondary market has been growing for 20 years. There are more transaction structures, the market is getting more mature, people are getting more sophisticated. It was a market where people were explaining what they were doing, and other people didn’t understand what that was, so there was an educational component to this, and there still is on the venture capital and growth side of the market, but on the buyout side of the market, nobody needs to explain anymore.”

Swildens thinks it won’t be long before venture catches up.

“The venture market over the next few years will become that way where people won’t have us explain what a continuation fund is, what a strip sale is, how to do a tender offer, how to do fund-level restructuring. Right now, there’s a lot of education about that because VC funds typically didn’t do that, and now they’re all trying to do it,” Swildens adds.

“I think we’re in inning five, about halfway through. In the next 3-4 years, we’ll probably be in inning six or seven, and you’re going to see more innovation happening. Ten years ago, there wasn’t a continuation fund. When we started doing this, the direct secondary market wasn’t viewed as a market,” Swildens said.

The rush to meet market demand has led to a surge in both new launches and fundraising. But, Swildens says, new entrants have a tendency to quickly head for the exits when conditions change—something he’s seen each cycle over his twenty years in the market, and a pattern he expects will continue.

Reflecting on his own firm’s longevity and the surge in investor interest in the space, Swildens delivers a message of caution.

“We’ve had new players enter the game every year for the last 20 years, so that’s not new. There are a lot of ways to get this type of investing wrong. It’s not one thing. You can get this wrong 50 different ways, it’s very tricky,” Swildens said.

"You can come in and get lucky, but I think to be a systematic, repeatable, sustainable investment firm, you need to operate your portfolios at lower loss rates and higher returning asset rates. To build that portfolio is tricky.”

Swildens believes portfolio construction is the top priority and has been key to his firm’s sustained performance over the years.

“I’d say that we have a very consistent track record. We’ve built our portfolios in a certain way so that when the market cycles, we can withstand the downturn and still make money. Most of the other folks that have come into this investment strategy have failed or left because they invested capital at the wrong time and bought the wrong things. They didn’t think about portfolio construction or timed diversification, or risk or loss rates. I think people come in and just start buying stuff and don’t think about what happens if the market resets, so when it does reset, a lot of them go out of business.”

But, even for Industry Ventures, it’s been a story of trial and error through the years.

“I think new buyers don’t understand portfolio construction or risk analysis. These are things that they’re not focused on — honestly, though, these are things that we got wrong, too, for the first 5-10 years of doing this. We had to learn all these awful lessons.”

“Any time there’s attention on any asset class, a lot of capital flows into it. Some people get it to work, and some don’t. There was a similar thing in 2009 when Lehman went under, and Bear Stearns went under. It’s different now because the driver is liquidity rather than bankruptcies and financial crisis.”

Looking forward, Swildens offers a handful of predictions on the market’s evolution.

“There’s a lot of innovation that is going to happen. We’re only halfway through the innovation cycle in terms of secondaries.”

“In the venture space, one of the things that might happen is that a lot of the corporate VCs are going to start doing joint ventures and hybrid fund structures. Right now, they are in inning one or two, where 90 percent of the corporate venture capital programs are funded with balance sheet capital. So, the sophistication of the structuring of that unit is very basic, but I think in the next 5 years, you’re going to see all those units as hybrid structures with financial backers in them: outside capital plus corporate capital.”

• Anglo American (LSE: AAL) is preparing to sell up to $5 billion worth of steelmaking coal assets and has hired Goldman Sachs, Morgan Stanley, and Centerview Partners to advise, per Reuters.

• Bain Capital is in talks to acquire Envestnet (NYSE: ENV), a US-based financial software provider, at a valuation of around $3.5 billion, per Reuters.

• Clayton Dubilier & Rice and Permira offered to take Exclusive Networks, a French cybersecurity company, private at €24 per share, valuing the business at around €2.2 billion.

• Honeywell (NYSE: HON) agreed to acquire Air Products’ (NYSE: ADP) LNG process technology and equipment business for $1.81 billion.

• Goldman Sachs Alternatives agreed to acquire a majority stake in TAIT, a live events staging and production firm, from Providence Equity Partners.

• The Grifols founding family and Brookfield Asset Management are in talks to acquire and delist Grifols, a Spanish pharmaceutical company.

• Bapcor (ASX: BAP), an Australian automotive parts retailer, rejected a A$1.83 billion takeover offer from Bain Capital, calling the A$5.40 per share cash bid insufficient.

• Merck Animal Health (NYSE: MRK) acquired Elanco Animal Health's (NYSE: ELAN) aqua business for $1.3 billion in cash.

• Nasuni, a Boston-based cloud storage firm, raised new funding in a growth round led by Vista Equity Partners, with participation from TCV and KKR, which valued the company at around $1.2 billion.

• AMD (Nasdaq: AMD) agreed to acquire Silo AI, a Finland-based AI lab startup, for around $665 million in an all-cash deal.

• Cressey & Company invested in Heartbeat Health, a cardiovascular care provider offering virtual care and diagnostic services.

• Canada Pension Plan Investment Board acquired a minority stake in team.blue, a provider of digital solutions for European SMBs, from Hg Captial.

• Capital Constellation, backed by Wafra, invested in Citation Capital, a Dallas-based private equity firm.

• Exponent invested £300 million in Kingsbridge Healthcare Group, a private healthcare provider in Northern Ireland and the Republic of Ireland.

• FFL Partners acquired Medicus IT, a provider of managed IT and cybersecurity services to healthcare organizations, from 424 Capital.

• Summit Partners made a minority investment in Revizto, a provider of collaboration software for architecture, engineering, and construction clients.

• Infinite Reality, an immersive AI company, acquired UK-based metaverse startup Landvault for $450 million in an all-stock deal, while also raising $350 million from a private multi-family office at a $5.1 billion valuation ahead of its previously announced SPAC transaction.

• Groupe Menissez acquired Village Bakery, a UK-based producer of baked goods distributor, from Limerston Capital.

• American Industrial Partners acquired a 60 percent stake in Aker BioMarine's feed ingredients unit, a harvester and producer of krill-based ingredients for aquaculture and pet food.

• Parthenon Capital acquired Medical Review Institute of America, a provider of outsourced utilization management and clinical review solutions for payors, from Summit Partners, which will retain a stake.

• Duolingo (Nasdaq: DUOL) acquired Hobbes, a Detroit-based animation and motion design studio.

• Hi-Tech Apparel acquired Unmade, a London-based software provider for customized on-demand clothing.

• Fintel (AIM: FNTL) acquired Threesixty, a provider of compliance and business support services to financial advisers, from Abrdn for £14.6 million.

• Impel acquired Outsell, a Minneapolis-based automotive customer engagement platform, for around $100 million.

Portfolio Company Add-Ons

• Tyto Athene, an Arlington Capital Partners portfolio company, acquired MindPoint Group, a provider of managed cybersecurity services to U.S. federal agencies and organizations.

• National Safety Apparel, a portfolio company of Blue Point Capital Partners, acquired Tri-Star Glove, a manufacturer of personal protective apparel for automotive, foundry, fabrication, and glass end-markets based in Plainville, Indiana.

• UpSwell, a Clearview Capital portfolio company, acquired Dental Marketing, a Utah-based provider of direct mail services for dental practices nationwide.

• Vetnique Labs, backed by Gryphon Investors, agreed to acquire Lintbells, a UK-based pet supplements maker, from Inflexion.

• Signia Aerospace, an Arcline Investment Management portfolio company, agreed to acquire Goodrich Hoist & Winch, a provider of aircraft rescue hoists and cargo winches, from Collins Aerospace.

• Vivo Infusion, backed by InTandem Capital Partners, acquired Infusion Associates, a provider of ambulatory infusion services with centers in Michigan, Minnesota, Ohio, and Wisconsin.

• Specialty Appliances, backed by Reynolda Equity Partners, acquired Ordont, a provider of orthodontic appliances to general dentists.

• Ardent Health Services, a network of hospitals and outpatient facilities, set terms for an IPO on the NYSE under the ticker ARDT, offering 14.3 million shares at $20 - $22 for a $3.15 billion valuation.

Tech, Vertical SaaS, & Misc. Enterprise

• Hayden AI, a smart cities vision AI solution, raised $90 million in Series C funding led by The Rise Fund, with participation from the Drawdown Fund and Autotech Ventures.

• Captions, a generative video creation and editing platform, raised $60 million in Series C funding led by Index Ventures, with participation from Kleiner Perkins, Andreessen Horowitz, Sequoia Capital, Adobe Ventures, and HubSpot Ventures.

• planqc, an atom-based quantum computing startup, raised €50 million in Series A funding led by CATRON Holding and DeepTech & Climate Fonds, with participation from Bayern Kapital, UVC Partners, and Speedinvest.

• Command Zero, an autonomous cyber investigation platform, raised $21 million in seed funding led by Andreessen Horowitz, with participation from Insight Partners.

• Natcap, a nature and biodiversity intelligence startup, raised $10 million in Series A funding from André Hoffmann, Norinchukin Capital, Yeo Ventures, Pelican Ag, Oxford Science Enterprises, and MW&L Capital Partners.

• Scaler, a real estate ESG data analytics platform, raised $10 million in Series A funding led by Plural, with participation from Base10 Partners.

• Vee, an Israeli startup developing AI agents for nonprofits, raised $7 million in seed funding led by TLV Partners, with participation from SOMV, Oryzn Capital, Meitav Dash, and Disruption Ventures.

• Dora, a multichain unified search and action engine, raised $5.5 million in early-stage funding co-led by Dragonfly Capital and Lemniscap, with participation from Robot Ventures, Ethereal Ventures, Maven11, and Arche Capital.

• Tracebit, a London-based cloud threat detection and deception platform, raised $5 million in Seed funding led by Accel, with participation from Tapestry VC.

Fintech

• Nala, a Kenyan remittance and B2B payments startup, raised $40 million in Series A funding led by Acrew Capital, with participation from DST Global, Norrsken22, HOF Capital, Amplo, and NYCA Partners.

• Canoe Intelligence, a provider of alternative investment intelligence solutions, raised $36 million in Series C funding led by Goldman Sachs Alternatives, with participation from F-Prime Capital and Eight Roads.

• Dash Technology Group, a Sydney-based fintech providing software for financial advisers, raised A$22 million in new funding led by Bailador Technology Investments.

• Trustap, an Irish marketplace transaction platform, raised $5.5 million in Series A funding led by TX Ventures, with participation from SeedX, Partners Resolute, Aperture, MiddleGame Ventures, ACT VC, Atlantic Bridge, and FurthrVC.

• Zeti, a London-based clean transport financing platform, raised £5 million in Series A funding from HYCAP Group.

• Accend, an AI-powered platform helping fintechs and banks accelerate new customer onboarding, raised $3.2 million in seed funding led by Adverb Ventures, with participation from Y Combinator, General Catalyst, and 645 Ventures.

Consumer & Media

• Volley, a developer of AI-powered voice-controlled games for smart speakers and TVs, raised $55 million in Series C funding co-led by Microsoft's M12 Ventures and Lightspeed Venture Partners, with participation from General Catalyst, Causeway Media Partners, Amazon Alexa Fund, BITKRAFT, Y Combinator, Boost VC, Alumni Ventures, Waverley, Gaingels, and Riverside.

• Tierra Encantada, a Spanish immersion early education provider, raised $38 million in Series B funding from Susquehanna Growth Equity.

• Byway, a flight-free travel tech startup, raised £5 million in Series A funding led by Heartcore Capital, with participation from Eka Ventures.

Healthcare

• NOWDiagnostics, a developer of over-the-counter and point-of-care diagnostic tests, raised $22.5 million in Series B funding led by DigitalDx Ventures, with participation from Labcorp Venture Fund and Kompass Kapital Management.

• Courier Health, a patient-based CRM platform for pharma, raised $16.5 million in Series A funding led by Norwest Venture Partners, with participation from Work-Bench.

• Endoron Medical, a medtech developing endograft stapling solutions for abdominal aortic aneurysm repair, raised $10 million in Series A funding led by Sofinnova Partners, with participation from the European Innovation Council Fund.

Industrials, Greentech, & Other

• ZwitterCo, a water treatment startup developing membrane technologies, raised $58.4 million in Series B funding led by Evok Innovations, with participation from DCVC, BHP, Munich Re Ventures, Siteground, HG Ventures, and Blue Horizon Advisors.

• Polystyvert, a Montreal-based plastic recycling cleantech, raised $16 million in Series B funding led by Infinity Recycling, with participation from SWEN Blue Ocean and Earth Foundry.

• Eneida, a provider of neighborhood grid intelligence solutions, raised €10.5 million in Series B funding led by Junction Growth Investors and Santander Alternative Investments, with participation from Korys and HCapital.

• epilot, a Cologne-based energy transition cloud platform, raised €10 million in funding led by Expedition Growth Capital.

• Flagship Pioneering raised $3.6 billion for its latest family of early-stage life sciences funds.

• Hahn & Co., a South Korean buyout firm, raised $3.34 billion for its fourth flagship buyout fund.

• HongShan, formerly Sequoia Capital China, raised $2.5 billion for its latest early-stage fund.

• Index Ventures raised $2.3 billion across two new funds: an $800 million venture fund and a $1.5 billion growth fund.

• Monomoy Capital Partners raised $2.25 billion for its fifth middle market buyout fund.

• Astorg raised €1.4 billion for a continuation fund to acquire Normec, a pan-European testing and certification company, with backing from CVC Secondary Partners, Pantheon, Lexington Partners, and Eurazeo.

• Avesi Partners, a Stamford-based buyout firm focused on healthcare and business services, raised $1.35 billion for its second fund.

• Truelink Capital raised $875 million for its debut middle market buyout fund.

• Benchmark raised $425 million for its eleventh venture fund.

• North Sky Capital, a Minneapolis-based impact investor, raised $250 million for its Clean Growth VI secondaries fund.

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