INTRODUCTION Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
open doors to diversification across different industries, stages of growth and geographies. In recent years, numerous successful growth companies found themselves compelled to remain private for extended periods. This con - trasts with the dynamics that prevailed through - out most of the 2010s, when the choice may have been strategic and driven by abundant private funding options. However, given dimin - ishing exit opportunities at sufficiently attractive terms, this decision has become less discretion - ary in today’s market conditions. Especially for early stage investors, secondary markets can offer an attractive opportunity to exit their invest - ment earlier than anticipated, which becomes particularly pressing when the start-up experi - ences substantial value appreciation prior to reaching a stage where it either goes public or becomes an attractive M&A target. At the same time, substantial challenges remain, especially concerning information disparity and particularly on the buy side, where investor demand and willingness to conduct due dili - gence on growth companies may not be able to adequately address existing supply at all times. Buyers have been seen to anticipate steep dis - counts regarding the net present value of their investment objects. Nonetheless, liquidity in the private marketplace has increased during the past few years, facilitated by initiatives such as Nasdaq Private Market, an initiative by the Lon- don Stock Exchange that has facilitated more than USD45 billion in transactional volume since inception; Forge Global, that expanded into the European market in 2024; and others. The global marketplace for secondary transac - tions grew from USD109 billion to a record high of USD152 billion. Against this background, some expect that discounts may become less
pronounced in the future or even cross into pre - miums, leading to secondary purchases above market value. This trend may exacerbate investor hype for access to particular companies (such as those in AI) and widen the chasm between the top performers and lower-conviction start-ups. Complementary financing structures With VC deal-making expected by many to rebound in 2025, there is potential for a shift towards a more coherent blend of equity and non-dilutive financing within the capital structure of growth companies. Globally, start-ups are facing an environment still shaped by a non-negligible discount rate, making debt funding an option that requires careful con - sideration. However, as existing loans mature, borrowers will likely seek refinancing options and placing reliance solely on equity financ - ing may not suffice. Additionally, there is likely to be a growing demand for non-dilutive debt financing in sectors requiring substantial capital investment – for example, real estate, crypto- mining, aerospace and space technology, as well as clean energy and renewable technology. Besides a persistent bid-ask spread between investors and start-ups as to the valuation evolu - tion of sophisticated private credit concepts, as well as certain subsidised programmes (such as that operated by the European Investment Bank) have contributed to the increasing popularity of venture debt which studies assess accounts for as much as 15% of all venture capital trans - actions in the US. Worldwide, venture debt is forecast to reach a market volume of USD43.16 billion in 2025. Anticipated rebound in VC deal-making in 2025 Notwithstanding persistent challenges in the VC market and the struggles faced by many com - panies in securing funding since 2021, VC deal-
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