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The tech flywheel effect: how secondaries drive startup ecosystem growth
Author: Rando Rannus
Startups need fuel to grow – capital, talent, and momentum. But what if we could speed that growth up? Well, we can. Let us introduce you to the flywheel effect of unlocking liquidity.
Secondary deals can hugely accelerate the growth of the startup ecosystem. Imagine a founder selling some shares in a secondary deal. They cash out, reinvest in a new venture, or fund other startups. Their key employees can do the same – use their hard-earned capital to build their own dreams or invest further.
Source: The State of European Tech
What Is the flywheel effect?
Flywheel is like the snowball effect – the momentum that occurs when small wins accumulate over time, creating continued growth and improvement. Each exit or secondary deal speeds up the flywheel and keeps it going round and round – and giving back to the ecosystem, creating continuous growth and improvement.
Why liquidity matters
Liquidity is essential. Founders, early employees, and investors need access to capital to grow, expand, and reinvest. However, there’s often a gap when it comes to liquidity. The companies are staying private for longer and the median timeline to IPO has more than doubled in the past 20 years.
This is where secondary deals come in. They unlock capital for those who need it. And much of this capital gets injected back into the ecosystem, moving the entire ecosystem forward.
Source: The State of European Tech
For example, when companies like Wise and Pipedrive had successful exits, dozens of new angel investors were born. They went on to fund other startups, spreading their wealth, expertise, and networks across the ecosystem. Bolt itself stems from the so-called Skype Mafia – the first tech flywheel in Estonia that has spawned countless startups in over 50 countries.
The result? More capital flowing into startups, more talent building the new generation of successful companies, and more ambitious entrepreneurs entering the game. This is how the flywheel accelerates.
Siena’s experience: 70% of sellers invest back into the ecosystem
At Siena, we see the potential of secondaries in the startup ecosystem. We’ve helped founders, early employees, and investors unlock liquidity at just the right time. And the results speak for themselves: 70% of our sellers have gone on to invest in startups and VCs after their secondary sale.
We talked to Joonatan Samuel, one of Veriff’s former employees, who sold part of his shares to get a peace of mind and focus on his new ventures – Reiterate. Read his story here.
The bottom line is – the flywheel effect creates a cycle of growth in the startup ecosystem and boosts the economy. Unlocking liquidity pushes the entire system forward – faster and with more momentum. That’s how innovation thrives, and that’s how ecosystems flourish.
Let’s keep the wheels turning.