Company quality, security rights and position size form one investment decision. The chart locates relative qualities conceptually. Marker size carries no data.
Co-Investment and Secondary Diligence
Company quality, security rights and position size form one investment decision.
View chart data and assumptions
| Item | Horizontal position | Vertical position |
|---|---|---|
| Access | Lower | Moderate |
| Company | Moderate | Higher |
| Security | Higher | Moderate |
| Net Outcome | Higher | Higher |
What Exposure Is the Portfolio Adding?
A co-investment lets an LP invest in a known company alongside a private-market sponsor. It gives the LP choices over the company, share terms, price and size of its stake that are usually delegated in a blind-pool fund. Adams Street's co-investment overview explains the structure.
The appeal is easy to see. Co-investments often carry lower fees and carry than ordinary fund investments. Those savings become valuable when the actual vehicle terms are clear and the added company concentration is justified.
A co-investment and a secondary may involve the same company, but the cash can go to different places. New shares fund the business, while existing shares pay a selling holder. That distinction helps explain what is being compared when two prices are quoted.
A Co-Investment Concentrates the Fund Relationship
An LP commits $50 million to a $500 million fund, then adds a $10 million co-investment. The new company stake equals 20% of its original fund commitment.
The LP can now study the business and negotiate around a known security. In exchange for that choice, it assumes more responsibility for diligence and position sizing. The sponsor's conviction helps frame the opportunity, but it cannot substitute for the LP's own case.
What Is a Private-Company Secondary?
The secondary market is now large enough to be a meaningful route to private-company ownership. Carta estimated $61.1 billion in VC secondary transactions for the 12 months ending June 2025, slightly more than the $58.8 billion of VC-backed IPO value recorded over the same period.
A secondary gives the buyer an existing share or vehicle interest. The seller receives the purchase money, so the transaction normally leaves company cash unchanged.
The holder's reason for selling helps explain why the shares are available. Company support, consent rules and rights of first refusal affect how long the transfer may take and whether it can close.
Fund Investment Versus Co-Investment
- Fund investment: The GP picks companies, decides on later funding and does much of the monitoring across the portfolio.
- Co-investment: The LP chooses a specific deal. It takes more responsibility for the checks, position size and monitoring.
Primary Versus Secondary Shares
Carta reported that the median tender at Series C or later was $27.6 million in the first half of 2025. This gives investors a useful reference point for the scale of later-stage transactions.
Large tenders show that secondary liquidity can be meaningful. Their proceeds serve a different purpose from a new funding round: a primary buyer funds the balance sheet, while a secondary buyer replaces an existing owner.
The securities may also differ. A lower price can reflect weaker economic rights or less company information, so a discount alone does not establish that the buyer is getting better value.
Benefits and Risks
Carta found only 44% of SPVs charge management fees, but among fee-charging vehicles the 2023 median was 1.9% and the 75th percentile was 2%.
| Potential Benefit | Institutional Control Point |
|---|---|
| An investment in a specific company | Position sizing, look-through exposure, and follow-on policy |
| Potential fee efficiency | Full gross-to-net model across SPV expenses, carry, and taxes |
| Strategic insight | Written separation of financial thesis and strategic rationale |
| Access to later-stage private companies | Information rights, transfer approvals, and realistic cash planning |
Company Quality Gives the Price Its Context
A business has a stronger basis for growth when it solves a customer problem repeatedly. Retention and customer concentration help show whether reported sales reflect lasting demand or dependence on a few buyers.
Future cash needs can change the case. Another round may be required before the company reaches its milestones, diluting the buyer and altering the security stack.
That evidence gives the entry price context. The possible return also depends on the risk and length of the holding period. Even a strong business can be a poor investment when the price already assumes most of its future success.
Share Class, Preferences, and Rights
The security's place in the exit waterfall determines who gets paid first and when conversion would pay a holder more. Two stakes in the same company can therefore receive different shares of the sale value.
Decision and reporting rights affect how closely the buyer can follow the business. Rights to join later rounds also influence whether it can maintain its ownership as the company grows.
In a secondary, transfer limits and company rights to buy first can affect whether the deal closes.
SPV Fees and Layered Economics
The investor's full cost extends beyond the quoted company price. The vehicle may charge ongoing fees and carry, while legal expenses can weigh heavily on a small allocation.
Those charges connect the entry cost to the investor's net proceeds. The company's gross result is the starting value; the vehicle's terms determine how much of it reaches the LP.
Family Offices and Strategic Investors
A family office may use a co-investment to add exposure in a sector it understands. A corporate investor may value a commercial relationship alongside the financial return.
A stated business objective makes the strategic benefit easier to assess. Price, risk and expected proceeds still explain the financial case. Keeping both visible shows when a hoped-for partnership is being used to justify weak investment terms.
Deciding Whether the Transaction Belongs in the Portfolio
The company, security, sponsor and portfolio each explain a different part of the decision. A strong business can still offer an unsuitable security, and an attractive deal can add too much risk to the LP's existing holdings.
A plausible buyer and timeline give the exit case substance. The return then passes from the business through the security and vehicle costs to the investor. Its size and timing determine how that result would affect the wider portfolio.
Databricks: Equity, Debt, Liquidity and Strategic Capital in One Financing
Databricks closed a $10 billion Series J at a $62 billion valuation in January 2025 and added a $5.25 billion credit facility. Meta joined as a strategic investor.
The equity round funded growth and let employees sell shares.
A bank-led credit facility created a separate debt claim alongside the equity.
Meta's business goals could differ from the goals of investors seeking only a financial return.
A complex financing can give participants very different positions. Equity price and tender allocation define part of what they buy. Debt claims and strategic rights affect their place in the deal, while information access and future funding needs shape the work and risks that follow.
Primary sources: Databricks, Series J and debt financing (2025). The public Databricks financing illustrates a co-investment setting and is not presented as a Frontierspace result.
Frequently Asked Questions
Are co-investments safer than fund investments?
A co-investment puts risk into one known company and gives the LP more say in its choice. Adequate information and a stake sized for the portfolio can make that control useful. The sponsor's role and reasons for offering the deal are also part of the case.
Why might a secondary be available?
A seller may need cash, an older fund may be returning capital or a company may have arranged a tender. These motives explain why shares can be available even when the business is healthy.