Economic nature of the secondary market
The secondary stock market (secondaries) consists of share transactions without the company's participation. They are executed by current shareholders.
Late-stage names like Stripe, SpaceX and Revolut keep their primary rounds closed, letting in mostly strategic and brand-name capital. The secondary market is the side door into those companies: an ordinary investor can pick up an allocation here, usually below the last round. The discount is not a fixed number; across 2025 the average secondary changed hands between roughly 13% and 29% under the most recent primary price, and in the hottest stretches about one deal in five cleared at a premium, when demand for AI exposure ran ahead of supply. Some of the largest names skip the open market and run their own tender offers, setting a single clearing price at which employees may sell a slice.
On one hand, secondaries allow early investors and founders to obtain liquidity and lock in profits. On the other hand, they affect company valuation and compete with fundraising — which is why deals proceed under conditions of high confidentiality.
Two forces built this market. Companies now stay private far longer, often a decade or more, so paper wealth accumulates with no exit while employees, founders and early funds all look for a way to turn equity into cash. Since 2022 the IPO window has been narrow, which pushed that pressure onto the secondary market rather than the public one. Buyers, in turn, get a route into franchise names long before any prospectus appears.
Secondary market ecosystem
Secondary shares are sold on a non-public market with restricted access to participants:
Founders
Founders of successful startups are often wealthy only "on paper." In reality, many founders continue to live on a salary that may be incommensurate with the theoretical value of their stake, which is only available for sale in 3–5 years at IPO.
The secondary stock market gives founders the opportunity to partially monetize their stake before exit. By selling a small portion of their shares (typically 5–15%), founders can address basic financial needs while maintaining control and interest in growth.
Experienced founders often synchronize the sale of part of their shares with major funding rounds, which allows them to minimize negative perception by the market and investors. However, information about such deals rarely becomes public, since it can be perceived as a signal of the founder's lack of confidence in the company's prospects.
Option holders (ESOP)
Like founders, ESOP holders often become active participants in secondary deals when liquidity needs arise, such as when purchasing housing, obtaining education, or due to personal financial circumstances.
Employee share sales often encounter corporate barriers. The boards of directors of many startups actively resist secondary transactions, fearing dilution of shareholder structure and potential conflicts of interest. Companies implement mechanisms restricting share transfer and requirements for right of first refusal to the company itself.
Some large startups, such as Stripe, Airbnb, and Carta, have employee share buyback programs, organizing regular liquidity windows during which option holders can sell a certain percentage of their shares to company-approved investors.
Early investors
Early investors (angels and venture funds) often become active participants in the secondary market due to objective economic constraints of the venture model. A typical venture fund has a lifespan of 10-12 years, after which it must return funds to its investors (LPs). When companies remain private for longer periods, secondary sales become a necessary mechanism for ensuring liquidity.
Factors prompting early investors to sell shares on the secondary market include the need to demonstrate returns (DPI) to raise funds for subsequent funds, portfolio diversification and risk management, as well as capital reallocation to new projects with potentially higher returns.
Financial intermediaries and funds
Financial intermediaries form the secondary market infrastructure and include investment banks, specialized funds, and marketplaces such as EquityZen, Forge Global, and Nasdaq Private Market. Intermediaries not only connect sellers and buyers but also provide pricing, legal deal structuring, and regulatory compliance.
The economic model of intermediaries is based on agency fees ranging from 2% to 10% of the transaction amount depending on complexity and deal size. Additionally, many intermediaries develop supplementary services such as comprehensive private company analytics, syndicated investment organization, and deal structuring advisory, which creates additional revenue streams and strengthens their positions in the secondary market ecosystem.
Deal structure and mechanics
The process of selling secondary shares always consists of a sequence of stages, each with its own characteristics and requiring specific expertise:
1. Target identification and share price per share (PPS) determination
Valuation methodologies include comparable analysis, discounted cash flow (DCF) method, and analysis of recent investment rounds.
2. Identification of shareholder for sale
Finding a willing seller is the real bottleneck. Supply comes from former employees past their option-exercise deadline, early angels who want liquidity, and ESOP holders who need cash before an IPO that keeps sliding. The work is matching a credible holder to a clean block, then confirming they actually own what they are offering, free of pledges, earlier sales or spousal claims that could surface at closing.
3. Comprehensive due diligence
Includes analysis of corporate documents, financial statements, intellectual property rights, and contractual obligations. Since the deal is often discussed without board and recent investor participation, access to pitch deck and recent materials is often limited.
4. Deal structuring
Three shapes dominate, and each trades a different mix of control, cost and certainty. A direct transfer moves the shares into the buyer's name once the company signs off. An SPV pools several buyers into one vehicle that holds the block, which keeps the cap table tidy and lets smaller cheques clear together. A forward contract is used when the holder cannot transfer yet: the buyer pays today for delivery later, at the IPO or when a lock-up ends, and carries the risk that delivery never happens.
5. Corporate consents and preemptive rights
Most cap tables carry a right of first refusal: before any outside sale closes, the company or its existing investors can step in and buy the block at the agreed price, usually inside a 30-day window. The transfer also needs board sign-off, and the two together routinely add 30 to 60 days to the timeline. Until both clear, the buyer holds a signed agreement, not the stock, which is exactly why forward contracts and SPVs exist.
6. Deal closing (closing deliverables)
Includes updating the company's cap table, issuing and transferring share certificates to the new owner, conducting settlements, share transfer, and issuing certificates.
Where these deals happen
Most family-office and retail access runs through a few venues. Marketplaces such as Forge Global, Hiive and Nasdaq Private Market match buyers with sellers and publish indicative pricing; Forge alone sits at the centre of a market that crossed $120 billion in transaction volume in 2025. Feeder investment platforms like iCapital package single names into funds for smaller cheques. Forge generally takes around 5% split across the two sides on a $100,000 minimum per name; SPV venues add a management fee and a slice of the upside, so the quoted discount is never quite the price you pay.
Risks worth pricing in
The discount pays for real hazards. Information is asymmetric: deals are often run without the board or recent investors, so the buyer rarely sees a current deck or fresh financials. A right of first refusal can pull the block at the last minute. Inside a forward contract or SPV the buyer owns a claim, not stock, so if the transfer is blocked or the seller defaults the usual remedy is the money back, not the gain you were underwriting. Companies can also re-read their own transfer restrictions under anti-avoidance principles and unwind a deal that looked closed. None of this shows up in the headline price, which is why diligence and structuring earn their keep here.
Related: SPV · Series LLC · ESOP · Forge Global · Hiive · Nasdaq Private Market · Side letter · QSBS §1202
External: Forge market data · EquityZen 2025 private-market trends