Introducing Ascii Venture’s Secondaries Strategy – The Bifurcated Fund
Most venture capital firms avoid secondaries – and not without reason. The traditional VC model is optimized for primary investments in early-stage companies, where capital fuels new growth rather than liquidity for existing shareholders. But there’s also a regulatory dimension: secondaries are not VC-exempt assets.
Under U.S. SEC rules, funds maintaining VC-exempt status can only hold up to 20% of their AUM in non-exempt assets (which include secondaries). Exceeding this cap risks losing the exemption, meaning a fund may no longer rely on the venture capital adviser exemption under applicable regulations. Managing that balance is complex but can be worthwhile if executed with discipline.
Ascii is attempting something quite rare: the true “Bifurcated Fund”. Can we successfully hold equity stakes in both super early stage companies and super late stage companies and still provide extremely favorable returns over a shorter period of time?
Why Secondaries Are Strategically Advantageous for VC Firms
Despite structural constraints, secondaries can offer VC firms unique advantages — both financial and relational.
Closer to the exit: Later-stage and secondary positions bring funds closer to liquidity events. By building relationships with growth-equity and private equity investors — the participants who often drive exits — VCs can deepen their understanding of late-stage market dynamics and gain greater insight into potential exit pathways.
Information edge: Engagement in the secondary market can also enhance market intelligence. VC firms that regularly observe or participate alongside growth-stage or crossover investors gain visibility into liquidity needs, fundraising cycles, and sector-level momentum. This perspective can surface insights that may not appear in traditional primary deal flow.
Today’s Valuation Climate…
Secondary investing today is unfolding against a backdrop of elevated private-market valuations — particularly in AI and frontier technology. Consider a few recent datapoints:
Anthropic: raising $10 billion at a $350 billion valuation
OpenAI: valued at roughly $500 billion following a 2025 secondary transaction
xAI: secured $20 billion at an approximate $250 billion valuation in early 2026
SpaceX: reportedly pursuing a 2026 IPO at a valuation of up to $1.5 trillion
It is a striking contrast when compared to Facebook’s $1 billion acquisition of Instagram in 2012.
At these levels, pricing discipline matters more than ever. The risk of underwriting overstretched growth narratives can outweigh the benefits of gaining exposure to a well-known name at any price.
Why Sellers Choose to Exit
Secondary supply is typically driven by two primary seller groups:
Early employees seeking liquidity: Long-tenured employees at high-growth private companies often hold concentrated equity positions. Partial liquidity can enable diversification, risk reduction, or the realization of long-term value creation.
Funds nearing the end of their lifecycle: Venture funds are commonly structured with 10-year terms. As these funds mature, managers may need to pursue liquidity to return capital to limited partners. When exit timelines extend beyond a fund’s life, secondary transactions may occur earlier than preferred — sometimes at discounted valuations.
Ascii Venture’s Approach to Secondaries
Our approach to secondaries emphasizes acquiring high-quality companies at reasonable prices rather than underwriting speculative multiples. We wanted to combine primaries and secondaries into the same fund vehicle because it provides multiple symbiotic benefits.
Firstly, DPI timelines are shortened. Secondly, strategic relationships with later stage companies (of which all will be direct – never through an SPV) are valuable insofar as providing a potential exit path for the earlier half of the portfolio. This here is the key: can both sides of the portfolio interact together to generate returns? Can talent even flow between the two?
We focus on secondary situations in companies that generally exhibit the following characteristics:
Valuations between $2–15 billion
No recent primary raise (signals some risk, and provides potential discounting)
At least approximately 3-5 years of operating history
Reasonable dilution profiles
Off-cycle industries such as fintech, applied robotics, and healthtech – anything boringtech that may not be “hot” in AI-land right now
The Discipline Behind the Strategy
Secondaries are not without risk. Even strong companies can produce poor investment outcomes if entry pricing is misaligned. The core reliance here is on a direct relationship with the later stage company that we’re buying secondaries from or through a VC firm. Secondly, understanding the risk dynamics not purely on other firm’s research or financials is key: customer profiles, existential risk, are all key in our analysis.
Disclaimer
This material is provided for informational and educational purposes only and does not constitute an offer to sell, or the solicitation of an offer to purchase, any security or investment advisory service. Any views expressed are subject to change without notice.
