Liquidity in private markets is never guaranteed. Shares can be valuable on paper and still hard to sell, because the buyer pool is limited, company approvals take time, and every party in a transaction has different goals. Secondaries are transactions in which existing holders sell private-company shares or fund interests to other investors. Understanding how the secondary market works, and where transactions stall, is the first step toward a sale that closes.
What Are Secondaries?
In private markets, a primary transaction is one where a company or fund raises new money by issuing new shares or interests. A secondary transaction is one where an existing holder sells what they already own to someone else. The company or fund doesn’t receive the proceeds; the seller does.
Secondaries take several forms:
- Direct secondaries: a founder, employee, angel or fund sells shares it holds in a private company. See selling private shares and Direct secondaries for funds.
- LP stake sales: a limited partner sells an interest in a private fund. See LP stake sales.
- GP-led transactions: a fund manager moves one or more assets into a new vehicle and offers existing investors liquidity. These are institutional transactions with their own processes.
- Company-run programs: some companies organize liquidity programs for employees. Sell Side Securities™ doesn’t run these; our focus is negotiated secondary sales.
What Are Secondaries in Private Equity and Venture Capital?
In private equity and venture capital, the secondary market lets investors adjust their exposure before a fund or company reaches its natural exit. A limited partner may sell a fund interest to rebalance a portfolio or meet a liquidity need. A venture fund may sell part of a portfolio-company position to return cash to its own investors, turning part of its MOIC into DPI. A founder or employee may sell vested shares to diversify.
The private equity secondary market has grown as companies stay private longer and exits arrive less predictably. For holders, that growth means more potential buyers. It doesn’t remove the challenges below.
Challenge 1: Transfer Restrictions
Most private companies limit who can own their shares. Rights of first refusal, approval requirements and lock-ups are common. Funds have their own versions: general partner consent, transfer provisions and sometimes rights of first refusal for other limited partners. These rules protect the company or fund, but they mean a sale has to be planned around their process.
What to do: review the documents before any outreach, so there are no surprises late in a negotiation. Our article Mastering Sell-Side Due Diligence lists what to gather.
Challenge 2: Finding the Right Buyer
A private position can’t be listed on an exchange. The right buyers are often institutions or accredited investors who know the company’s sector and can move through diligence. Reaching them takes relationships as well as technology. Secondaries marketplaces can widen reach, but a listing doesn’t replace a conversation with a buyer who understands the position.
Challenge 3: Price Discovery
Without a public market, the price of a secondary position is set by negotiation. Recent funding rounds, company performance, the share class and market conditions all play a part. Common stock and preferred stock can trade at different prices because their rights differ. Interest from more than one qualified buyer, where it exists, gives a seller a clearer view than a single inbound offer.
Challenge 4: Aligning Stakeholders
A secondary sale touches more than buyer and seller. The company wants an orderly cap table and may care who its new shareholders are. Existing investors may hold rights. For funds, limited partners care about distributions and about how a sale is priced against the fund’s marks. Aligning these interests early keeps a transaction moving.
Challenge 5: Timing
Private marks tend to follow public markets, usually with a lag. Waiting can mean a better outcome or a worse one; nobody can promise which. Our partner firm Different Investments writes about public-market conditions in pieces such as The AI Cracks Are Making Headlines. What a seller can control is being ready: knowing the rules, the goals and the likely buyers before deciding.
How the Secondaries Market Compares With Waiting for an Exit
| Waiting for an IPO or acquisition | A secondary sale | |
|---|---|---|
| Timing | Set by the company and the markets | Set by you and buyer interest |
| Amount | All or nothing at the exit | Part or all of a position |
| Price | Set by the exit | Negotiated with buyers |
| Approvals | Handled by the company at exit | Company transfer process required |
Why the Secondary Market Has Grown
Three shifts have pushed more private-market activity into secondaries. Companies raise larger private rounds and stay private longer, so employees and early investors hold equity for more years before an exit. Exit windows have become less predictable, which stretches fund lives and delays distributions. And more investors want access to established private companies, which widens the pool of potential buyers. Together these shifts mean more holders who want liquidity and more buyers who want exposure.
Direct Secondaries and LP Stake Sales Compared
The two most common secondary transactions for individuals and funds work differently:
| Direct secondary | LP stake sale | |
|---|---|---|
| What is sold | Shares in one private company | An interest in a private fund |
| Typical seller | Founder, employee, angel or fund | Limited partner |
| Key approval | Company transfer rules and ROFR | General partner consent |
| Buyer takes on | The shares and their rights | The fund interest, including unfunded commitments |
| Pricing reference | Recent rounds and company performance | The fund’s net asset value and portfolio |
A direct secondary concentrates on one company, so buyers focus on that company’s prospects and the share class. An LP stake sale spreads across a fund’s portfolio, so buyers study the fund’s holdings, its remaining life and any capital still to be called.
Questions to Ask Any Secondaries Buyer, Marketplace or Advisor
- How are buyers verified, and when?
- How is my information shared, and with whom?
- How does the process handle my company’s right of first refusal?
- How are fees calculated, and when are they explained?
- Which registered broker-dealer executes the transaction?
Key Secondaries Terms
- MOIC: multiple on invested capital, the value of investments on paper.
- DPI: distributions to paid-in capital, the cash returned to limited partners.
- ROFR: right of first refusal, a right to buy shares on the same terms before an outside buyer.
- NAV: net asset value, a fund’s reported value of its holdings.
- See our full Glossary for more.
How Funds Use Secondaries to Manage Distributions
For a venture or growth fund, a secondary sale is a portfolio decision as much as a transaction. Managers typically weigh a few questions before selling part of a position. Which holdings have grown large enough to dominate the portfolio’s risk? How would a partial sale affect the fund’s reported value and its relationship with the company? And how would the proceeds change the fund’s DPI, the measure limited partners watch most closely when they consider the next fund?
Selling a portion of a strong position, rather than all of it, lets a fund return cash while keeping exposure to further growth. Confidential outreach to qualified buyers protects the company relationship and avoids signaling to the market. Our page on Direct secondaries for funds explains the process.
How Individual Holders Can Prepare
Founders and employees face the same five challenges at a smaller scale, often for the first time. A simple sequence helps. Gather ownership and vesting records first. Read the transfer provisions and note any right of first refusal or approval deadline. Decide what portion you’re willing to sell and what you need the proceeds for. Then talk with qualified tax and financial professionals before you speak with buyers, because the answers can change how much you choose to sell. Our partner firm C-Suite Planning’s Executive Financial Planning page describes that kind of planning.
What This Means for Buyers
Buyers face mirror-image challenges: verifying ownership and share class, understanding the company’s transfer process, and knowing that a right of first refusal can end a trade late. Working through a structured process with clear steps reduces those risks on both sides. See Acquiring a position.
Aligning Strategy for a Sale That Closes
- Start with the documents, not the buyer.
- Define goals in writing: amount, timing and priorities.
- Keep outreach confidential and limited to qualified counterparties.
- Negotiate terms beyond price, including how approvals are handled.
- Close through a registered broker-dealer.
Frequently Asked Questions
What is the difference between primary and secondary transactions?
In a primary transaction a company or fund issues new shares or interests and receives the money. In a secondary transaction an existing holder sells to another investor and receives the proceeds.
Who buys secondaries?
Institutions, dedicated secondary funds, family offices and accredited investors. Sell Side Securities™ works only with accredited investors as buyers, with a preference for qualified purchasers.
Are secondaries only for large funds?
No. Founders, employees and smaller funds also sell secondary positions. Sell Side Securities™ works with positions of $500,000 or more in companies valued at $500 million or more.
Can a company block a secondary sale?
Many companies hold a right of first refusal and must approve transfers. That’s why the documents come first.