What Is a Private-Company Secondary Transaction?

Key Takeaways

• Price agreement does not complete the transfer: Company consent, rights of first refusal, legal eligibility, and other closing conditions may still apply.
• Seller motivation provides context: Liquidity needs can be ordinary, but buyers should still consider differences in information and incentives.
• Direct shares and SPV interests are different: Fees, voting authority, reporting, tax treatment, transfer limits, and control may change with the structure.
• A discount needs a relevant reference point: The last financing round may be stale, involve another share class, or include rights the buyer will not receive.

A Public Example

Carta's Q1 2026 market review highlights tender offers and secondaries as important liquidity routes for private companies.

• The transaction is not just a price: Buyers need to understand company approvals, transfer limits, information access, settlement mechanics, and the security being purchased.
• The practical lesson: Secondary liquidity can be useful, but the legal and informational constraints may be more important than the headline discount.
• Useful number: A decade-long fund term is common enough that 10+ year illiquidity should be assumed unless the documents say otherwise.

Who Sells in a Secondary?

Company-stage mix: In first-half 2025, 61% of Carta tenders involved Series C-or-later companies and 39% involved seed through Series B.

Possible sellers include:

• Employees and former employees: May want to diversify personal wealth or fund other needs.
• Founders: May seek limited liquidity before a broader company exit.
• Early investors: May rebalance a portfolio or return capital.
• Funds: May be managing the end of a vehicle's life.
• SPV holders: May want liquidity from an interest that indirectly owns company shares.

The reason for sale can range from ordinary portfolio management to concern about valuation, financing, or timing.

The US SEC describes a private secondary as a transaction in which an investor sells private securities to another investor. Because private securities are often restricted and not freely tradable, agreeing on price is only one part of the transaction.

Seller motivation is context, not a verdict. The buyer should still ask whether the seller has information the buyer does not and whether insiders are participating on different terms.

How the Process Works

Tender period: Formal tender offers generally run for 20 business days. Company approval, transfer documents, payment, and cap-table updates can extend the practical timeline.

A typical review begins with proof that the seller owns the asset and with the documents governing the security or vehicle.

Counsel then assesses:

• Securities-law requirements: Whether the buyer, seller, and transaction can legally proceed.
• Contractual restrictions: Conditions contained in share, investor-rights, or vehicle agreements.
• Company procedures: Notices, approvals, and administrative steps required by the issuer.
• Rights of first refusal: Whether the company or another shareholder can purchase on the agreed terms.
• Consent rights: Whether the company or another party can prevent the transfer.

Treat timing as uncertain until notices, waivers, approvals, and closing conditions are complete. The buyer should also know what happens to funds if closing fails and who pays the legal or administrative costs.

Direct Secondary Versus SPV Interest

SPV cost reference: Carta found a 1.9% median management fee in 2023 among fee-charging SPVs, with GP commitments generally between 0.3% and 1.2% of vehicle size.

• Direct share purchase: Confirm the exact class and series, certificate or electronic ledger position, preference rights, and whether side-letter benefits transfer.
• SPV interest: Review both the company's security and the vehicle agreement.

An SPV may introduce additional fees, reporting arrangements, transfer limits, tax treatment, and control rights. Its manager may retain voting authority and control future transfers or distributions.

Valuation and Discounts

Observed pricing: In Carta's first-half 2025 tender data, the median discount was 0% and the 75th-percentile discount was 15%. Private block trades can show wider discounts depending on rights and information.

A secondary price may be above, below, or near the last primary round. A discount is not automatically attractive.

• Current performance: Has the business improved or deteriorated since the last financing?
• Cash runway: How soon might the company need more capital?
• Preferred terms: Did the last-round investors receive rights absent from the secondary security?
• Public comparables: How have relevant listed-company valuations changed?
• Exit scenarios: What outcomes are plausible after considering time, dilution, and preferences?

A useful valuation review rebuilds enterprise value from the proposed share price and fully diluted capitalization, then tests several exit values.

Information Limits

Secondary buyers may receive less information than primary investors. Confirm what is available before relying on the proposed price.

• Financials and operating metrics: Are the figures current and sufficiently detailed?
• Rights documents: Can the buyer verify preference, governance, and transfer provisions?
• Capitalization: Is the cap table current and fully diluted?

The SEC notes that private securities can be illiquid and information may not be publicly available. When material evidence is missing, the appropriate response may be a lower price, a smaller position, or no transaction.

A Practical Closing Checklist

• Ownership: Verify the seller's position and the exact security or vehicle interest.
• Transfer terms: Review consent, right-of-first-refusal, co-sale, lockup, and other restrictions.
• Price: Reconcile the proposed amount with the fully diluted capitalization and preference stack.
• Post-close rights: Confirm information access, tax reporting, fees, voting authority, and distribution mechanics.
• Settlement conditions: Identify every item that can delay or prevent closing.

Related Reading

See primary versus secondary shares and how to evaluate private technology secondaries.

Frequently Asked Questions

Does the company receive cash in a secondary transaction?

Short answer: Usually not. In a pure secondary, the buyer pays an existing shareholder. A transaction can still include a separate primary component that provides new capital to the company.

Does a discount to the latest round make a secondary attractive?

Short answer: Not by itself. The investor must compare the correct security, preference stack, information rights, transfer limits, financing needs, and realistic exit value.

Related Reading

Evaluating private technology secondaries, Primary versus secondary shares, and Information rights and transfer restrictions.