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Structure guide

Secondary shares explained

Secondary transactions are one of the primary ways retail-accessible pre-IPO deals are structured. Understanding who is selling, at what price, and why matters enormously before you participate.

Primary vs. secondary transactions

A primary transaction is when a company issues new shares directly to investors — a Series A, B, or C funding round. The money goes to the company. A secondary transaction is when an existing shareholder sells their shares to a new investor. The money goes to the seller, not the company.

Most pre-IPO deals available to retail-accessible investors are secondary transactions, not primary ones. Understanding who is selling — and why — is one of the most important pieces of diligence you can do.

Who sells in secondary transactions?

Secondary sellers are typically:

  • Employees and former employees who hold vested stock options or restricted stock units and need liquidity before an IPO
  • Early investors (angel investors, seed-stage VCs) who want to return capital to their own LPs or diversify out of a large position
  • Founders who take partial liquidity in company-sponsored tender offers
  • Later-stage investors who need to return capital by a fund deadline and cannot wait for an IPO

The fact that someone is selling is not inherently a negative signal — people sell for many reasons unrelated to their view on the company's prospects. But you should ask why the seller is selling and what their original entry price was relative to the price being offered to you.

How pricing works in secondary markets

Private company shares do not trade on an exchange. Pricing is negotiated, opaque, and often derived from the company's most recent preferred stock round valuation (the "last round price"). However, secondary transactions routinely occur at a premium or discount to this reference point.

Premium scenarios

  • High demand for a well-known company
  • Intermediary markup on top of last-round pricing
  • Recent private market transactions suggested a higher valuation

Discount scenarios

  • Seller needs urgent liquidity
  • Restricted share class with limited rights
  • Company performance has softened
The markup problem

Intermediaries who source secondary shares and sell them through SPVs or platforms frequently add a markup — sometimes 20–40% or more — above the price at which they acquired the shares. You may be paying significantly more than the last funding round implied, which means you need even greater appreciation before you see any return. Always ask the specific price per share, the last-round reference price, and the implied markup.

Transfer restrictions

Private companies control who can own their shares. Most company shareholder agreements include:

  • Right of first refusal (ROFR): The company (and sometimes existing investors) has the right to purchase shares before a secondary sale can proceed. If the company exercises its ROFR, your planned purchase cannot happen.
  • Board approval requirements: Many companies require board approval for any secondary transfer. Approval is not guaranteed.
  • Lockup provisions: Shares may be subject to lockup periods preventing transfer for a defined period, even if an IPO occurs.
  • Shareholder count limits: Companies with fewer than 2,000 shareholders avoid SEC reporting requirements. Some companies actively manage their cap table to stay below this threshold, which can restrict secondary transactions.

Secondary market platforms

Several regulated platforms facilitate secondary transactions in private company shares, including Forge Global, Hiive, Nasdaq Private Market, and others. These platforms provide more transparency than informal over-the-counter transactions but still carry all the structural risks described above.

Pre-IPO Atlas is not affiliated with any secondary market platform and does not facilitate secondary transactions.

Key questions before any secondary transaction

  • What share class is being sold, and what are its rights relative to preferred shares held by VCs?
  • What is the price per share relative to the company's last primary round per-share price?
  • Has the company's ROFR been waived, or could it still be exercised?
  • Has the board approved this specific secondary transfer?
  • What lockup applies to these shares if the company goes public?
  • What does the seller's original entry price tell you about their view on the current offer price?
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