Who sells, and why
The secondary market for late-stage private companies is made of existing shareholders who want liquidity before an IPO: employees and founders with vested shares, early angels, and venture funds approaching the end of their life. The company receives no new money; the shares change hands.
As companies stay private for longer, this market has grown from an occasional arrangement into a regular part of how late-stage companies are owned.
Two ways trades happen
Tender offers
The company opens a window, sets the price and chooses the buyers. Orderly and documented, but by invitation only.
Direct trades
A buyer and a seller agree a price, usually through a broker or a secondary platform, and the transfer is then submitted to the company for approval.
How a direct trade works
Matching
Buyer and seller agree the number of shares and the price, subject to the company’s approval.
Purchase agreement
A share purchase agreement is signed, conditional on the transfer being approved.
Notice to the company
The company is notified and reviews the buyer.
Right of first refusal
The company or its existing investors may take the shares on the same terms. If they do, the trade does not go ahead.
Settlement
Once approved, the price is paid and the transfer is recorded in the company’s share register.
The whole process usually takes several weeks, and the approval step decides it.
Direct shares or units of a vehicle
Many secondary offers are not shares of the company but units of a vehicle that holds them. The buyer then owns a claim on the vehicle, pays its fees, often including a share of the profit, and depends on its sponsor for information and for the exit.
This is not wrong in itself, but it should be known before the price is compared. The question to ask is simple: does the buyer end up on the company’s share register, or in someone else’s vehicle, and how many layers of vehicles are there?
The risks, stated plainly
- →Information. A private company publishes little, and the seller often knows more than the buyer.
- →Share class. Common shares sit behind preferred shares, which usually carry a liquidation preference.
- →Completion. A right of first refusal or a refused approval can stop a trade after weeks of work.
- →Timing. The exit depends on an IPO or a sale of the company, followed by a lock-up.
Where a note fits
A securitisation compartment can be the buyer. It acquires the shares, or the position, and issues pre-IPO notes with a European ISIN that investors hold in an ordinary custody account. The company deals with one buyer of record, and investors whose bank cannot hold unlisted shares hold a security instead.
The other routes into late-stage companies are compared in how to access pre-IPO companies , and the way secondary prices are formed in how pre-IPO secondary prices are set .
Frequently asked questions
Can a private company block a sale of its shares?
Usually, yes. Most private companies restrict transfers in their articles or shareholder agreements: a sale needs the company’s approval, and the company or its existing investors often have a right of first refusal to buy the shares on the same terms. A buyer should expect that some trades will not complete.
What is a tender offer in a private company?
A sale window organised by the company, usually with a lead investor, in which employees and early shareholders can sell part of their shares at a set price to buyers the company has approved. Tender offers are the most orderly route into a late-stage company, but access is by invitation.
Do secondary buyers always pay a discount?
No. Shares in the most sought-after companies can trade at or above the price of the last funding round. Many others trade below it, especially common shares and when funding conditions are tight. The price depends on the company, the share class, the size of the block and the terms of the transfer.
What happens to secondary shares when the company lists?
They become listed shares. Holders are normally subject to a lock-up after the IPO, often around 180 days, during which they cannot sell. The exit is therefore some months after the listing date, not on it.
Buying into a late-stage company?
Tell us the company, the size and who the investors are. We come back with an indicative structure.
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