Direct Secondary Transactions and When Do They Become Useful in a Startup’s Life?


Holding shares in a sexy startup sounds like an exciting idea and it’s potentially a very lucrative investment. However, sometimes the exit can’t come fast enough – the company might be doing great but just not yet ready to be sold or IPO. Maybe (if you’re a VC) your fund was set up for 10 years but the company needs at least a couple more to succeed, and you would like free up some cash. Maybe you’re a founder who’s left after years of building your business, and now you need cash for a new venture instead of some highly illiquid shares.

Nick Habgood, one of the founders of Azini Capital, described these scenarios while chatting about how exactly direct secondary transactions work, and who might profit from their services. “A direct secondary transaction is the acquisition of shares or other securities (for example shareholder loans) in a private or small cap public company from historical investors and shareholders. This type of transaction is also described as replacement capital.” Their typical client would be as described above, venture capital funds looking to unwind some investments, but also hedge funds and, on rarer occasions, the founders of businesses looking for liquidity.

A great example would be Shazam, currently an Azini portfolio company. The music recognition app that has been around for an astounding 15 years: the original product sent an SMS message telling you the song title and artist after dialling 2580 and holding your phone up to the music. Today they connect more that 500 million people and they’ve just closed a $30 million investment valuing the company at over $1 billion. Wonderful news, however if you’d been one of the early investors you might not want to wait for a return on your investment any longer.

As all good investors, Azini doesn’t only provide cash, but also support and a diverse experience in building, selling and merging businesses. Since 2007 they’ve been through 18 exits with an enterprise value of more than £1.5 billion, an impressive number. Their strength is evaluating mature businesses and helping them step to the next level. Sometimes that involves complete profile change as in the case of Keronite, one of Nick’s favourite projects to date.

In Keronite’s case shifting from a product-based business model to services-based made the big difference. The company serves the aerospace industry, automotive, consumer and elite sporting applications with the world’s most advanced surface treatment. Their clean technology basically melts the surface of light alloys such as aluminium, magnesium and titanium, which then recrystallises as hard, dense, ceramic surface, durable even in the most extreme circumstances. In the last year their sales have grown by 92% due to this restructuring and the efforts of the CEO, Matt Hamblin, his management team and of course the company’s staff.

As with Keronite, where Azini Capital has led a number of rounds since their acquisition of shares in 2007, they regularly infuse fresh investment after the secondary purchase is completed. What they wouldn’t do however is primary investment, working with early stage or biotech and life science companies. They look for technology and technology-led companies in late or growth stage, potentially cash-flow positive, with a sustainable competitive advantage.  

One question naturally comes to mind: how is this type of investment different from early stage and venture capital, particularly in when it comes to risk? According to Nick, first of all it requires very different knowledge and experience in terms of evaluating the businesses. They usually have more established data sets to base their decision upon, and return on investment is more likely to be around 200-300% than 10 or 100 times over the original amount. It is also true, however, that the portfolio is more balanced and doesn’t have to deal with the dramatic odds familiar to venture capital firms, where 9 out of 10 company tends to fail, the last one standing making up for all the loss.

After seeing so many businesses grow and succeed, what would be his one piece of advice to give someone just starting out building a business? “The cheapest source of funding to grow your business is sales.”


Nick has a Masters Degree in Mechanical Engineering (M.Eng) from the University of Bristol and was sponsored through university by GKN plc. He subsequently worked for Twiflex Ltd. – a leading manufacturer of industrial disc brakes – in a product management / business development role.

Nick spent 6 years with Mars Electronics International – the world leading manufacturer of coin and bank note payment systems. He lived and worked in Italy for a number of years and established MEI’s sales and support presence in Italy and Spain before moving back to the UK to become the Director of Marketing and Product Management.

Between 1996 and 2000 Nick was the Chief Executive of MAOSCO Ltd – a company and industry consortium formed by Nick and backed by MasterCard and a group of leading banks to promote and license the MULTOS smart card operating system. More than 500 million MULTOS cards have now been issued in over 45 countries worldwide. He joined LMS Capital (venture capital division of London Merchant Securities plc) in 2000 where, with Michael Bennett, he built and managed a £120 million portfolio of technology venture assets.

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