Company quality, security rights, and position size should be read together rather than as separate decisions. Qualitative decision map. Positions are directional, and marker size does not represent measured data.
Co-Investment And Secondary Diligence
Company quality, security rights, and position size should be read together rather than as separate decisions.
View chart data and assumptions
| Item | Horizontal position | Vertical position |
|---|---|---|
| Access | Lower | Moderate |
| Company | Moderate | Higher |
| Security | Higher | Moderate |
| Net Outcome | Higher | Higher |
Key Takeaways
- Transaction-level choice creates concentration: Co-investments and secondaries provide specific-company exposure but lack the built-in diversification of a fund commitment.
- Company quality is only part of the decision: Price, security, rights, dilution, sponsor incentives, and liquidity determine how business value may reach the investor.
- Total economics matter: SPV fees, carry, administration, legal costs, and tax complexity can weaken an apparently attractive entry price.
- Strategic objectives should be explicit: Commercial learning or technology access may be valuable, but they should not replace financial underwriting.
A Public Example
ILPA's guidance treats co-investments, continuation vehicles, and related expenses as areas where LPs need transparency and conflict management.
- Transaction access has conditions: A co-investment or secondary can improve precision, but it can also add adverse selection, expense, and information asymmetry.
- The practical lesson: Investors should underwrite the specific company, security, terms, and process rather than relying on the sponsor's reputation alone.
- Useful number: The usual fund baseline is often described as 2% management fee and 20% carry; co-investment economics should be reviewed against that benchmark.
What Is a Venture-Capital Co-Investment?
Exposure example: A $2 million co-investment alongside a $10 million commitment to a $100 million fund adds a separate company-level position equal to 20% of the original fund commitment.
A co-investment is a transaction-level investment in a company, often made alongside a fund or other sponsor.
- Known company: The investor can evaluate a specific business before deciding.
- Known structure: Price, security, and transaction terms are available for review.
- Greater responsibility: Company selection is no longer fully delegated to a pooled fund manager.
What Is a Private-Company Secondary?
Market scale: Carta estimated $61.1 billion in VC secondary transactions for the 12 months ending June 2025, versus $58.8 billion in VC-backed IPO value.
A secondary transaction purchases existing shares or vehicle interests from a current holder rather than providing new capital to the company.
- Possible sellers: Employees, founders, early investors, funds, or SPV holders.
- Transfer conditions: Rights of first refusal, company consent, or other approvals may apply.
- Seller motivation: Understand why the holder wants liquidity at the proposed price and time.
Fund Investment Versus Co-Investment
- Fund investment: Provides portfolio exposure and delegates company selection, follow-on decisions, and much of the monitoring to the GP.
- Co-investment: Provides greater choice and targeted exposure, but transfers more diligence, concentration, and monitoring risk to the investor.
Primary Versus Secondary Shares
Tender-size gap: In first-half 2025, Carta's median tender at Series C or later was $27.6 million, compared with $5 million at Series B or earlier—about 5.5 times larger.
- Primary shares: New capital goes to the company and usually forms part of a negotiated financing round.
- Secondary shares: Purchase proceeds go to an existing holder.
The two may differ materially in price, economic rights, information access, and the company's support for the transaction.
Benefits and Risks
Layered-cost reference: 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 | Corresponding Risk |
|---|---|
| Specific company exposure | Single-company concentration |
| Potential fee efficiency | Layered SPV expenses or carry |
| Strategic insight | Conflicts between strategic and financial objectives |
| Access to later-stage private companies | Limited information and long liquidity horizon |
Underwriting Company Quality and Entry Price
Start with the business, then connect company quality to the price being paid.
- Market structure: Is the addressable opportunity attractive and defensible?
- Product strength: Does the product solve an important problem?
- Revenue quality: Review growth, retention, customer concentration, and repeatability.
- Margin and cash needs: Understand operating leverage, burn, runway, and likely financing requirements.
- Competitive position: Assess differentiation and the ability to sustain it.
- Exit paths: Identify plausible routes and timelines for liquidity.
The entry price should leave room for an attractive net outcome after dilution, costs, and time.
Share Class, Preferences, and Rights
The buyer should understand what it will legally and economically own.
- Liquidation preference and seniority: Who receives proceeds first in different exit scenarios?
- Conversion and voting rights: When can the security convert, and what decisions can the investor influence?
- Information and pro rata rights: What reporting and future participation are available?
- Transfer limits and ROFR: What restrictions or company purchase rights apply?
- Drag-along provisions: Under what conditions can holders be required to sell?
- Company approval: Must the issuer consent before the transfer closes?
SPV Fees and Layered Economics
Evaluate the full structure rather than the headline company price.
- Management and administration: Ongoing fees may apply at the vehicle level.
- Carried interest: The sponsor may receive a share of investment profits.
- Legal and transfer costs: Transaction expenses can be meaningful for smaller allocations.
- Tax complexity: The vehicle or investor may face additional reporting and structuring issues.
A low headline entry price may still produce weak net economics after these costs.
Family Offices and Strategic Investors
Different investors may use the same structure for different reasons.
- Family offices: May build targeted exposure around sectors where they have knowledge or conviction.
- Corporate and strategic investors: May also seek market intelligence, commercial relationships, technology access, or venture partnerships.
Those objectives should be documented clearly and should not replace financial discipline.
Frontierspace Perspective
Frontierspace evaluates co-investments and secondaries through:
- Company quality and market structure: Whether the business and its competitive setting support long-term ownership.
- Entry valuation: Whether price leaves room for an attractive risk-adjusted outcome.
- Security rights: The investor's economic and governance position.
- Investor context: The sponsor, shareholder group, and incentives surrounding the transaction.
- Liquidity potential: Realistic routes and timelines for realizing value.
Materials are shared with qualified prospective investors only following review.
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 round included capital intended for employee liquidity as well as growth.
A bank-led credit facility sat alongside the equity financing.
Commercial and strategic interests could differ from those of financial investors.
What it shows: A transaction-level review must identify exactly what the investor owns and where it sits. Equity price, tender allocation, debt claims, strategic rights, information access, and future financing needs are separate diligence questions.
Primary sources: Databricks, Series J and debt financing (2025). Public transaction evidence only; this is not represented as a Frontierspace investment or result.
Frequently Asked Questions
Are co-investments safer than fund investments?
Not necessarily: Co-investments can be more concentrated and may require faster, deeper company-level diligence.
Why might a secondary be available?
Reasons vary: A seller may have an ordinary liquidity need, or may be concerned about timing, valuation, or financing risk. Motivation should always be reviewed.
For deeper comparison, see co-investment vs fund investment and private technology secondaries.
Related Reading
Also see corporate strategic co-investments, and requesting access to private opportunities.