Davorin Kuchan, founding managing partner of FreeRun, a dedicated CVC secondary fund manager, demystifies the use of this tool.
Despite high expectations for a turnaround, the 2025 IPO engine is sputtering. The US initial public offerings had the slowest start in the first 6 months of 2025 with only 84 IPOs, a stark decline from the 2021 peak of 397 IPOs in the same timeframe.
With the prolonged multi-year lack of initial public offerings and acquisitions, the secondary VC market has been widely discussed as a viable liquidity option among VCs who need to return capital to their LPs. Corporate VCs are looking for similar exit options. Especially since CVCs are different from financial VCs by design.
The ‘first principle’ of corporate venturing should always remain corporate growth. Best CVCs should define themselves to primarily be the proverbial “tip-of-the-spear” for corporate innovation and competitiveness. Of course, it is not ‘strategic’ to lose money, so if CVC can make profit while delivering strong strategic value, that is a bonus, but only if it continually serves the strategic mission of the corporate parent.
“Many CVCs still worship the 15-year exit myths while their corporate strategy and leadership evolve every 3–5 years.”
Over the last two decades, CVCs have become more sophisticated investors. Yet in the search of best investment practices and compensation improvements, many CVCs have lost their compass, investing randomly in profitable yet non-strategic startups and holding assets beyond their useful strategic life. Like many early-stage VCs, many CVCs still worship the 15-year exit myths while their corporate strategy and leadership evolve every 3–5 years. This cadence mismatch creates dead capital and lost opportunity.
Too many CVCs today are sitting on such non-strategic positions, patiently waiting for those mythical billion-dollar IPOs that may never come. Why? Because the old venture playbook instructs to “hold”, even when their IRR is quietly dying, when their capital is locked up for 10–15 years and even when the startup no longer aligns with the CVC corporate strategy.
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Let’s be real: 3x in 15 years is a bad outcome. That’s a ~7% IRR, below most corporate hurdle rates and certainly below the financial and opportunity cost risk you are taking. And yet, it has become the norm in early-stage venture, with liquidity arriving in years 13-15, long after the original strategic value has expired. That is not innovation. That is dead capital.
For corporate VCs, who should be primarily engines of growth and innovation, “invest and hold” playbook is almost certainly a recipe for disaster and a path to eventual shutdown.
The good news is that there is a tool that could be of help – secondaries. Common in the PE market, today, the stigma around secondaries in venture capital is fading and CVCs should also embrace it.
But CVCs are unique investors and here is a good example of one-size not fitting all.
Strategy shifts, but the cap table doesn’t
CVCs typically invest for strategic reasons: insights, partnerships, adjacency to core offerings. But businesses evolve. Management changes. Roadmaps shift. That mobility startup from 2018 may have been a perfect fit then. Today, that supporting business unit doesn’t even cover that sector anymore.
Yet, these positions linger, illiquid, unmanaged, and no longer strategic. The opportunity cost is real, especially when capital could be reallocated to better-aligned, current initiatives.
A simple rule of thumb should guide portfolio decisions: if the corporate strategy is still aligned with the startup, hold, if not, sell.
When alignment disappears, hanging on the assets creates orphanage and drag. To avoid write-downs and perception of “losing money”, some have suggested a band-aid approach in the form of strip sales and partial ownership to extract some liquidity and generate DPI. Most often, this falsely creates a sense of accomplishment and adds unnecessary complexity when a clean exit would allow reinvestment into new, high-conviction, strategic themes.
Strategic clarity should drive cap table decision, not inertia. If it is still strategic, hold and double down, if not, sell the asset.
Secondaries aren’t a signal of weakness, they’re a sign of discipline
Selling in a secondary transaction allows corporate VCs to:
- Recycle capital back into current innovation priorities
- Improve IRR and reduce duration risk
- Refocus on what matters strategically today, not what mattered five years ago
CVCs need to embrace the full cycle of strategic investment. A 3x financial return in 15 years with a shifting strategy is nearly uninvestable. Holding out for an IPO that will provide an annual rate of return of $400M+ while your business units no longer engage with the startup is not aligned with how corporate VC is expected to operate and what the CVC ultimate charter ought to be, to deliver strategic value to the corporate parent.
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Secondary market: Time to think like private equity
Private equity figured out portfolio management a long time ago. Assets trade hands multiple times before exit, from lower middle market to mid-market to mega funds, each time unlocking liquidity and repositioning ownership. Corporate venture should be no different.
Leading VCs and PE firms have embraced secondaries not out of desperation, but out of prudence. They de-risk. They return capital. They manage portfolios actively.
So why do so many CVCs still act like passive holders, hoping for a unicorn event a decade away, while the original strategy is a distant memory? Because the playbook is outdated and the asset class has changed.
Sell below NAV? Yes – if it makes strategic sense
As a CVC secondary fund manager, I believe CVC investors should sell portfolio assets once they no longer make strategic sense, even at a discount to net asset value (NAV).
The fictional NAV for a Series B company with some binary venture risk always carries a strong discount in the secondary market. But even at modest gains, rebalancing portfolio via secondary sales enables CVC to realise gains, manage risk, and recycle capital, deploying it into higher-conviction opportunities like AI.
Holding out for peak valuations, especially outside of strategic alignment, is risky in illiquid markets. By locking in partial returns, CVCs can improve their internal rate of return (IRR), reduce exposure to outdated bets, and create space for strategic reallocation.
Selling on the secondary market is analogous to a farmer who sees storm clouds on the horizon. Waiting for perfect ripeness risks losing the whole crop. Harvesting early protects value, even if it’s not the theoretical maximum. Likewise, CVCs should harvest returns when market conditions are favorable, even below NAV, rather than risk missing liquidity windows entirely.
A call for active management
CVCs don’t need to be at the mercy of decade-long timelines. They don’t need to wait for IPOs or M&A to clean up their portfolios. If the assets are no longer driving corporate strategy, they need to actively work on selling those assets.
Selling non-strategic CVC positions in the secondary market is NOT an admission of failure. It is a deliberate, rational, strategic, and financially responsible decision. Proactive exits of non-strategic assets enable CVCs to:
- Show real returns to internal stakeholders
- Move at the speed of innovation
- Stay strategically relevant and self-sufficient
If the asset no longer serves the strategic mission, sell it. If it is not helping the corporate parent win in their market, move on. Liquidity is no longer a luxury, it is a necessity.
The best investors already treat secondaries as core tools of portfolio management. It’s time for strategic investors and CVCs to catch up.
Davorin Kuchan is founding managing partner at FreeRun, a dedicated CVC secondary fund manager purpose-built for corporate VC. Founded by CVC veterans, the FreeRun team understands the nuances of strategy drift, corporate valuations, board dynamics, market and timing pressures unique to strategic corporate investors.
