Why We Rarely Hear About Secondaries in German Scale-Ups [EN only]

Why We Rarely Hear About Secondaries in German Scale-Ups — Despite “Liquidity” Needs at Record Highs and Returned Capital at Historic Lows.

In Germany, secondaries were once common in oversubscribed primary rounds, with founders and early investors partially cashing out alongside a primary raise via secondary sales—until 2021.

Since then? Silence.

Meanwhile, U.S. companies like SpaceX, Stripe, Databricks, Wiz, and Fanatics have implemented liquidity programs for employees and VC funds, as reported by Bloomberg. But in German scale-ups? There’s little to no news about secondary transactions.

So, is Germany lagging not only in producing generational, defining technology leaders and investing growth capital but also in providing liquidity for employees and shareholders?

Absolutely.

Secondary transactions in German scale-ups remain rare. Here are nine key reasons why:

1️⃣ No Small Secondaries
Approximately 15% of addressable volume in secondaries cannot sell. Employees in Germany don’t own actual shares due to dry income tax hurdles, unlike in the U.S., where employee ownership forms the most liquid secondary segment (typically $100K - $2M transactions). Additionally, German notary requirements increase the minimum transaction size. While U.S. scale-ups have a “long tail” of smaller cap table stakes, German cap tables are dominated by larger stakes (e.g., >€10M) because small stakes are non-existent due to the lack of employee ownership.

2️⃣ Scale Mismatch
VC funds generally aim to sell large stakes (€20M+), as selling small portions (e.g., 2% of a position) is inefficient and hard to justify to their limited partners (LPs). However, local buyers often lack the funding for such sizable deals. Europe also lacks large, direct secondary funds (unlike the U.S.), leaving demand concentrated on a few standout companies.

3️⃣ Price Mismatch
While there is interest in German scale-ups, buyer and seller price expectations often don’t align. Sellers tend to forget that deals need to be attractive to buyers. Institutional sellers, especially, are rarely under enough pressure to sell at a discount, even when their fund’s DPI (Distributions to Paid-In Capital) is low. Selling at a steep discount to boost DPI for fundraising often doesn’t justify the trade-off in LP discussions.

4️⃣ Late-Stage Investor Demand
Germany has produced relatively few widely known technology scale-ups with global growth prospects, though many tech-enabled businesses have achieved unicorn status. Secondary market demand, even from U.S. investors, typically focuses on these well-known German standout companies.

5️⃣ Conflict with Fundraising
Companies and boards frequently block secondary sales ahead of primary funding rounds. This is to avoid setting discounted price benchmarks and to ensure that primary funding allocation is prioritized before allowing secondary transactions. This challenge dries up liquidity for secondaries in times when primary funding appetite is low.

6️⃣ Data Transparency
German private companies are not required to disclose equity financing round prices, and there are no publicly disclosed mutual fund marks. This creates a lack of public reference points for valuing these companies, in stark contrast to U.S. Delaware companies and U.S. mutual fund disclosure requirements, where valuation benchmarks and prices are more transparent.

7️⃣ Company Involvement
Secondaries in German scale-ups require company involvement, including pre-alignment and approval of the right to sell. Sellers sometimes share limited confidential information without proper approval, creating legal and reputation risks and making secondaries more difficult to gauge initial demand and execute.

8️⃣ Alternative Approaches
Instead of selling stakes outright, funds nearing the end of their lifecycle often prefer to set up continuation vehicles for promising assets (HV Capital set up a continuation fund for portfolio companies Flixbus and Sumup, amongst others). These allow them to retain exposure to potential upside while continuing to earn management fees, making this approach more appealing than secondary sales.

9️⃣ Exit Prospects
Investing in late-stage scale-ups is driven by the probability of exits. If capital markets remain less attractive and fail to improve structurally (e.g., via an EU Capital Markets Union), liquidity will remain limited, and exit opportunities will likely stay low.

The Cyclical Nature of Secondaries
Secondary markets are highly cyclical, influenced by available capital and shifting demand. Since the market reset of recent years, secondaries in German scale-ups have been exceedingly rare due to price mismatches, deal sizes, motivations to sell, and structural challenges in executing these transactions.

Final Thought
The gap in liquidity for employees and shareholders in German scale-ups remains a significant challenge. Until structural inefficiencies and misalignments are resolved, the secondary market in Germany will continue to lag behind its U.S. counterpart.

Note: There is no public disclosure of closed secondary transactions in Germany. Well-performing companies typically manage secondaries internally, making it impossible to determine the actual size of the direct secondary market in Germany.