How Private Company Secondaries Work: Buying Shares From Existing Shareholders

“You mean you can just buy shares in private companies?”

This is often the first question I get when I explain what we do here at PrePublic Equity Partners. The answer is yes: you can buy shares in a private company from its existing shareholders, although “just” leaves out much of the work.

What is a private company secondary transaction?

A private company secondary transaction is a sale of existing shares by a current shareholder, such as an employee, founder, or early investor, to a new buyer. The company stays private and issues no new shares. Only the owner of the shares changes.

Private companies already have shareholders: founders, employees, and investors who funded the business along the way. Some want to sell before the company goes public or gets acquired. A secondary transaction connects those shareholders with a new buyer.

Understanding how that happens requires separating a few things people often group together: investing in a company versus buying from a shareholder, owning shares directly versus through a vehicle, and a company’s last announced valuation versus the price someone will pay today.

Consider a hypothetical employee, Sarah, who joined a software company eight years ago. She owns 100,000 shares and would like to sell 20,000 to help buy a home. She still believes in the business and wants to keep most of her ownership. But the company has no immediate plans to go public, and her personal finances have reached a different stage.

A buyer is interested in those 20,000 shares. What happens next?

Primary vs. secondary: where does the money go?

In a primary transaction, the company issues new shares and receives the money to fund growth. In a secondary transaction, a buyer purchases shares that already exist, and the selling shareholder receives the proceeds. The company raises no capital, and the transfer does not itself dilute other shareholders.

In a traditional venture financing, the company issues new shares and receives money from investors. It can use that capital to hire employees, develop products, or expand into new markets. This is a primary transaction.

In Sarah’s sale, the proceeds go to Sarah, not the company. A financing can include both primary and secondary components, but the distinction remains: some money funds the business, and some provides liquidity to existing owners.

Who sells private company shares, and why?

Sellers are typically employees, founders, and early investors. Employees may want cash for a major expense, founders may want less of their wealth tied to one company, and early investors may want to return capital to their fund. Some sellers also have concerns about the business, which buyers need to understand.

Sarah is one example of a seller. Someone who backed a company a decade ago may have a very different time horizon from someone considering it today.

That difference creates room for a transaction. The seller can believe the business will keep growing and still have a good reason to sell some shares. The buyer can agree with that outlook and be willing to wait longer.

A seller’s motivation is part of what a buyer needs to understand, but the existence of a seller does not, on its own, tell you whether the investment is attractive.

How do buyers find sellers?

Buyers and sellers connect through direct approaches, introductions from existing investors, brokers, specialist marketplaces, or company-run liquidity programs for eligible shareholders. An introduction only creates a potential deal. Buyers still need to confirm share class, ownership, transferability, and available company information.

For Sarah, imagine an introduction through an existing investor. The prospective buyer wants to know how many shares she owns, what kind of shares they are, whether she can transfer them, and what information is available about the business.

Those questions matter before either side gets too attached to a price, because there is still work to establish whether the transaction can actually close.

How does a direct purchase work?

In a direct purchase, the buyer acquires the seller's shares and is recorded on the company's cap table. Transfers often need company consent, and the company or existing investors may hold a right of first refusal. Agreeing on a price does not guarantee the buyer receives the shares.

In a direct purchase, the buyer acquires Sarah’s company shares and becomes a shareholder recorded on the company’s ownership register, commonly called its cap table.

Private companies typically have restrictions on share transfers. The sale may require company consent. The company or existing investors may also have a right of first refusal, giving them an opportunity to purchase the shares on the proposed terms before an outside buyer can do so.

A simplified process is therefore: agree on proposed terms, verify ownership and transfer requirements, complete the required approval and right-of-first-refusal process, and close with payment and updated ownership records. The precise sequence depends on the documents. Nasdaq Private Market’s shareholder guide discusses these practical steps.

Direct ownership vs. an SPV: what changes?

Buying directly means owning company shares. Buying through a special purpose vehicle (SPV) means owning an interest in an entity that holds the shares, so the chain runs investor, SPV, company. SPVs may charge fees and carried interest, and transfer restrictions can apply to both the vehicle and the underlying shares.

For example, several investors might pool their money into an SPV that purchases Sarah’s shares. The vehicle becomes the company’s shareholder, while the participating investors own interests in the vehicle. Alternatively, an investor might purchase another investor’s interest in an SPV that already holds the shares.

In both cases, the ownership chain is:

Investor → SPV → company shares

That structure affects the economics and the investor’s control. An SPV may charge fees and give its manager a share of investment profits, known as carried interest. Its documents also determine how decisions are made and how proceeds reach investors. 

An SPV should not be assumed to remove approval requirements. Restrictions can apply to transfers of interests in the vehicle as well as to the underlying shares. The documents governing both layers matter. The table below compares four ways to buy private company shares by transfer approval, fees, control, and eligibility.

Direct Purchase vs. SPV vs. Marketplace vs. Fund: How Buying Private Company Shares Compares

This comparison focuses on U.S. private offerings. “Fund” means a private secondary investment fund investing across multiple companies; specific offering terms govern.

Carried interest, or “carry,” is the manager’s contractual share of investment profits. Accredited investor and qualified purchaser are distinct eligibility categories; qualifying for one does not automatically qualify you for the other.

How are private company shares priced?

Secondary prices are negotiated using a mix of inputs including the last funding round, recent secondary transactions, buyer and seller indications, company performance since the round, and comparable company valuations. An asking price shows what a seller hopes to receive. A completed transaction shows where a buyer and seller actually agreed.

A venture funding round produces a visible reference point. The company and investors negotiate the amount raised, the price of newly issued shares, and the rights attached to them, often with a lead investor helping establish the terms. The resulting valuation may become the number repeated in press coverage. 

A secondary buyer has to assess an existing holding at a different point in time, and each of the inputs above is a different piece of evidence, with its own limitations. Structure and share class can also affect how comparable one completed transaction is to another.  

What does a discount or premium to the last round tell you?

On its own, very little. The round may be old, performance may have changed, demand may have shifted, peer multiples may have moved, and the shares may carry different rights. 

Suppose Sarah’s company last raised money at $50 per share, and she agrees to sell at $40. In this hypothetical example, that is a 20% discount to the last round’s share price.

That alone does not tell the buyer it has found a bargain. The financing might have happened eighteen months earlier, and Sarah’s shares may carry different rights from those purchased in the financing.

Employees commonly hold common shares, while venture investors often purchase preferred shares. Preferred shares can carry provisions that affect who gets paid first, and how much, when the company is sold. Those differences can materially affect the value of each class, particularly in a disappointing exit.

The same logic applies in reverse. For companies with strong demand and few willing sellers, secondary shares can trade above the last round's price. That isn't automatically a bad deal. Suppose Sarah's company has doubled its revenue since it raised money at $50 per share. A buyer paying $60 is then paying a lower multiple of revenue than the round's investors did. What matters is the price compared with the business today, the rights attached to the shares, and any fees on top.

The buyer therefore needs to evaluate the specific security at the proposed price. A discount or premium to a headline valuation is a starting point for analysis.

Information access also varies. A buyer may receive company financials and management access, or have substantially less to work with. That affects confidence in the valuation and the willingness to proceed. Price discovery reflects both the business and the circumstances under which its shares can change hands.

How is buying private company shares different from buying public stock?

Public stocks offer visible quotes, regular disclosures, and brokerage access. Private secondaries require finding available shares, evaluating limited information, negotiating terms, and completing a permitted transfer. Each secondary gives liquidity to one seller. It does not promise ongoing liquidity to the buyer.

If Sarah's company were public, she could sell her 20,000 shares through a brokerage account in moments, at a price anyone can see, to a buyer she never meets. In a private sale, the buyer has to find her, confirm what she owns, agree on a price with few public reference points, and wait for the company's approval process before the shares change hands. Not everyone can be on the other side of that trade either: investor eligibility rules limit who can buy.

Who can buy private company shares?

Many private company secondaries are limited to accredited investors, though eligibility depends on the offering and structure.

In the U.S., many direct purchases and SPVs are available to accredited investors, who qualify through income, net worth, or certain professional credentials. Some funds impose additional requirements: qualified-client status relates to performance fees, while qualified-purchaser status determines access to certain private fund structures. These are separate tests, and the investment’s structure determines which apply. 

Secondary-focused managers may face different registration requirements from managers of primary-focused venture funds, since secondary purchases generally fall outside the investments qualifying for the venture-capital adviser exemption. That can affect the performance-fee rules they must follow. 

The rules may become less restrictive. On September 30, 2026, the SEC proposed allowing accredited investors to qualify as qualified clients, broadening access to performance-fee arrangements. The proposal is open for public comment, is not yet effective, and would not eliminate separate qualified-purchaser requirements. 

What happens after the sale?

The seller holds cash plus any remaining shares, and the buyer owns the purchased shares directly or through an SPV. The company may go public, be acquired, stay private, or fail. The buyer's own future sale needs its own path to completion.

If Sarah completes her sale, she has cash for her home and retains 80,000 shares. The buyer now owns the 20,000 shares she sold, directly or through an SPV, and takes on the uncertainty of what happens next.

That is the practical role of private company secondaries: allowing shareholders with different needs and time horizons to exchange ownership while the business continues operating. 

Finding the shares, understanding what is being purchased, agreeing on a price, and completing the transfer are the work behind that seemingly simple “yes.”

How PEP evaluates a secondary investment

PEP evaluates secondary transactions through a five-part underwriting process: company, price, counterparty, ownership, and structure. Each can independently stop a deal, and PEP passes on transactions that do not meet its return criteria, even when the company is compelling.

At PEP, we evaluate both the business and the specific transaction. We start with the company’s competitive position, financial performance, capital needs, and realistic paths to liquidity. Our internal scoring system helps us compare opportunities consistently and flag the most promising ones for further diligence.

We then assess the potential entry price against recent completed trades, available bids and offers, the last funding round and a range of available peer multiples across both public and private comparables. We model different growth rates, exit valuations, and holding periods, accounting for fees and carry to understand the potential net return. As we discuss in The Art Behind the Number, two investments in the same company can have materially different economics.

Finally, we examine the counterparties, verify the ownership chain through any SPVs, and review the legal terms governing transfers, investor rights, and distributions. If the information is insufficient or the terms do not compensate us for the risks, we pass.

Want to see this process applied to real transactions? Accredited investors can request access to PEP's investor portal, which includes our research, investment memos, and recorded deal discussions.

REQUEST ACCESS

Private Company Secondaries FAQ: Common Questions About Buying Shares From Existing Shareholders

Can anyone buy private company shares?

Eligibility depends on the offering. In the U.S., many private secondary opportunities are limited to accredited investors, while some funds require qualified-client or qualified-purchaser status. Other routes, such as certain crowdfunding offerings, allow broader participation. Meeting the eligibility requirements still leaves minimum investment sizes, share availability, and transfer approvals to work through. More on investor eligibility

What is a right of first refusal?

A right of first refusal, or ROFR, gives the company or other designated holders the opportunity to buy shares on the terms offered by an outside buyer. If they exercise that right, they take the outside buyer’s place. If they decline, the proposed sale can proceed, subject to any remaining approvals and restrictions. How ROFR works

Do secondary sales dilute other shareholders?

A simple sale of existing shares does not dilute other shareholders. The shares change hands, but the total number outstanding stays the same. If a transaction also includes newly issued shares—for example, a funding round with a secondary component—the new issuance can cause dilution. The transfer of existing shares does not. Primary versus secondary transactions

What is the difference between common and preferred shares?

Founders and employees typically hold common shares, while venture investors often buy preferred shares. Preferred shares can carry additional economic and governance rights, including priority in receiving proceeds when a company is sold. Those rights can materially affect returns, especially in a disappointing exit. Two shares in the same company are not necessarily worth the same amount. Understanding liquidation preferences

What are the risks of buying through an SPV?

You take on the underlying company’s risks, plus those of the investment structure. Fees and carry can reduce returns; the manager may control voting, sale timing, and distributions; and transferring your SPV interest may require consent. Some SPVs invest through another vehicle, adding costs and complexity. Confirm what the vehicle owns and what rights you receive. Examples of vehicle-level risks

Does a discount mean a good deal, or a premium a bad one?

No. A discount only tells you that the price is below a reference point, often the last funding round. That round may be outdated, the business may have weakened, or the shares may carry fewer rights. Fees and the expected holding period also affect returns. A premium can be justified when the business has grown meaningfully since the last round. The relevant question is whether today’s price is attractive for the specific investment you are buying. Private-market pricing inputs

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RESEARCH DISCLOSURE This article is for informational and educational purposes only. It represents independent thematic analysis prepared by PrePublic Equity Partners ("PEP") and is intended to discuss industry trends and company dynamics in the private markets. This content does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security or investment product. PEP is not a registered investment adviser or broker-dealer. Any offer or solicitation relating to securities will be made only through definitive offering documents to eligible investors. PEP and its affiliates may hold financial interests in companies discussed herein and reserve the right to trade such positions at any time without notice. Private market investing involves significant risk, including illiquidity and potential loss of principal. All data is sourced from publicly available information and has not been independently verified.

IMPORTANT DISCLOSURE This content is published by PrePublic Equity Partners ("PEP") for informational and educational purposes only. It does not constitute an offer to sell, or solicitation of an offer to buy, any security. No such offer or solicitation is made except by means of a confidential Private Placement Memorandum or other definitive offering documents delivered to eligible investors only. PEP is not a registered investment adviser with the SEC or any state securities regulator. Nothing in this article should be construed as personalized investment, financial, legal, or tax advice. All views are the opinions of the author as of the date of publication and are subject to change without notice. Private market and pre-IPO investing involves a high degree of risk, including illiquidity, potential total loss of principal, and reliance on unverified private company data. Past analytical observations are not indicative of future results. PEP and its affiliates, officers, or employees may hold financial interests in companies discussed in this article. PEP reserves the right to buy or sell such positions at any time without notice. PEP does not receive compensation from issuers mentioned in its research. PEP is an independently operated subsidiary of Alumni Ventures, LLC.