Access
Good pre-IPO blocks are hard to source. The market has many scattered offers, and strong deals are usually accessible only through established relationships.
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INTERNATIONAL FEDERATION FORECONOMIC DEVELOPMENT
Understanding the Secondary Market: Structure and Transaction Process
What is the Secondary Market?
The secondary market is where existing financial assets, such as bonds, shares, and other securities, are bought and sold between investors after their initial issuance. It supports liquidity, transparent price discovery, and efficient capital allocation by allowing participants to enter and exit positions without waiting for new issuances.
In pre-IPO opportunities, the secondary market enables investors to acquire shares from early employees, founders, or existing shareholders before a company goes public. What makes this segment special is access to late-stage private companies with strong growth potential, a landscape that often requires specialist expertise to navigate limited deal availability, strict eligibility requirements, and relationship-driven allocation, paired with negotiated pricing, tailored deal structures, and strategic entry timing ahead of a possible listing event.
The Problem
The pre-IPO secondary market is full of potential, but access and execution are still fragmented, inconsistent, and difficult to navigate at institutional quality.
Trust
This is a trust game. Transactions are prioritized for reputable names with proven execution history, making credibility as important as capital.
Structure
Everyone runs deals differently, with no single operating standard. With many parties involved, processes become chaotic and timing delays can cost the entire allocation.
In short, the stars need to align across counterparties, legal readiness, and timing;
if one part of the process slows down, another buyer can take the block.
Our Mission
« As the European liaison to American markets, our mission is to make pre-IPO secondary execution investable at institutional standard through trusted sourcing, disciplined onboarding, and rapid deployment readiness. »
Our Five Strategic Pillars
Global GP/LP and broker network
Access to top pre-IPO names
KYC onboarding and readiness
Designated SPV capital structure
U.S.-speed execution support
Watch: How IFED's internal system supports investors through pre-IPO secondary sourcing,
KYC onboarding, SPV setup, and rapid block execution in real market conditions.
Transaction Overview: Sell Side Interaction
We maintain a structured and disciplined interaction framework to the sell side to ensure transparency, procedural integrity, and execution certainty. A standardized process protects all counterparties, establishes clear expectations, and upholds the Swiss execution standard: diligent, detailed, and reliably delivered.
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1. Initial Discussion & Information Review
Following the initial discussion, all relevant transaction materials are provided to enable a thorough and informed review of the opportunity. If the specific block is not yet secured, we present the general opportunity framework so investors can indicate commitment before a block becomes available.
2. Non-Circumvention & Commission Agreement
At this stage, buyer and seller execute a Non-Circumvention and Commission Agreement. Should any third parties be involved in the transaction, they are formally documented within this framework for full compliance. This safeguards the agreed intermediary structure and ensures transparent, protected engagement for all participating parties.
3. Interest Confirmation
At this stage, the buyer confirms substantive interest in proceeding with the transaction and provides a formal green light to move forward, either via soft commitment or hard commitment.
4. Letter of Intent (LOI)
To evidence serious intent and commercial commitment, the buyer provides a formal Letter of Intent (LOI) setting out the principal commercial terms of the proposed transaction. Once funds are collected, the LOI is issued, signed, and submitted to the seller.
5. Seller Profile Disclosure
Once contractual protections are in place, the full buyer/seller profile and identification details are disclosed. Where a block is secured and disclosure has not yet occurred, this is the stage at which full profile information is formally released. This step is essential to preserve process integrity and to ensure that resources are deployed only within a properly protected framework.
6. Official Meeting & Transaction Execution
Once we confirm continued interest after profile review, we coordinate the formal transaction meeting with the seller, legal counsel, and relevant advisors. From there, as the buyer, we proceed through due diligence, negotiation, and final documentation through to successful closing.Upon completion, the shares are transferred into our SPV structure, through which our buyers maintain access to their investment.
Investor Q&A: Entering the American Secondary Pre-IPO Market
A practical reference for institutional investors evaluating access, structure, pricing, diligence, risk, and return dynamics in U.S. pre-IPO secondary transactions.
1. What is the American secondary pre-IPO market?
1. What is the American secondary pre-IPO market?
It is the private transaction ecosystem where investors buy and sell shares of late-stage U.S. companies before listing.
Buyers purchase from existing shareholders (employees, founders, early investors, funds), rather than in new issuance rounds.
Historically active examples: Airbnb, Stripe, SpaceX, Databricks.
2. Secondary vs primary private placements
2. Secondary vs primary private placements
| Feature | Primary | Secondary |
|---|---|---|
| Capital goes to | Company | Existing shareholder |
| Dilution | Yes | No |
| Pricing | Company-led | Negotiated |
| Access | Lead investor driven | Broker/platform driven |
| Liquidity motive | Growth capital | Seller liquidity |
Institutions prefer secondary entries when valuation entry improves, IPO visibility rises, and governance risk declines.
3. Who are typical sellers?
3. Who are typical sellers?
- Employees with vested shares
- Early-stage VC funds near end of life
- Founders seeking partial liquidity
- Family offices
- Corporate venture arms
4. Who are typical buyers?
4. Who are typical buyers?
- Hedge funds
- Growth equity funds
- Sovereign wealth funds
- Pension funds
- Crossover public-market investors
- Large family offices
5. Common transaction structures
5. Common transaction structures
A. Direct Secondary: Single-line transfer with ROFR and company transfer approval.
B. SPV: Aggregates exposure and reduces cap table complexity.
C. Tender Offers: Company-led liquidity windows with lower legal friction.
6. How is pricing determined?
6. How is pricing determined?
Pricing reflects last primary valuation, IPO timing probability, growth/ARR multiples, public comps, transfer restrictions, and liquidity discount (often 5-30%).
Example: a company last raised at $50B may clear in secondaries around $40-45B equivalent if listing is delayed.
7. Key risks
7. Key risks
- Liquidity risk (IPO timing uncertainty)
- Information asymmetry (limited disclosures)
- Transfer restrictions and ROFR constraints
- Regulatory risk (SEC and compliance scrutiny)
- Valuation compression (down rounds/public repricing)
8. Expected return profiles
8. Expected return profiles
- 20-30%+ IRR targets for a 2-4 year horizon
- 1.5x-3x MOIC depending on entry discount and exit timing
- Lower volatility than early-stage VC in many setups
9. Market liquidity cycle
9. Market liquidity cycle
2020-2021 peak liquidity, 2022-2023 compression, 2024-2025 recovery.
Traditionally active names include SpaceX, Stripe, OpenAI.
10. Institutional diligence focus
10. Institutional diligence focus
Financial: revenue growth, unit economics, burn/runway, cap table.
Legal: share-class rights, drag/tag, transfer restrictions, ROFR mechanics.
Strategic: IPO visibility, comps, competition, regulatory exposure.
11. Regulatory considerations
11. Regulatory considerations
- Accredited / Qualified Purchaser eligibility
- Company transfer approvals and policies
- Rule 144 and post-IPO lockups
- Potential securities litigation risk
12. Why institutions allocate
12. Why institutions allocate
- Access to high-quality companies before listing
- Potential discount versus IPO entry price
- Shorter duration than early VC
- Lower blind-pool risk and better diversification
13. Market trends shaping the space
13. Market trends shaping the space
- AI and infrastructure demand concentration
- Longer private company lifecycle
- Growth of structured secondary funds
- More transparency via platforms
- Company-led tenders replacing broker-driven flow
14. Market size estimate
14. Market size estimate
The broader private secondary market (including LP stake sales) is commonly estimated around $100B-$150B+ annually, with direct single-name pre-IPO secondaries representing a significant and growing subset.
Glossary
Core terms used across U.S. secondary pre-IPO transactions, structures, valuation, and governance.
A
Accredited Investor (AI)
Investor meeting SEC income/net worth thresholds eligible for private placements.
Affiliate
Person/entity controlling, controlled by, or under common control with issuer; affects resale rules.
Anti-Dilution Protection
Adjusts preferred conversion price in down rounds (weighted average or full ratchet).
American Waterfall
Carry calculated deal-by-deal rather than whole-fund basis.
Asset-Based Valuation
Valuation approach based on company assets rather than earnings (rare for growth tech).
B
Block Trade (Private)
Large negotiated secondary share transfer.
Board Observer Rights
Right to attend (but not vote in) board meetings.
Book Value
Accounting value of equity (generally irrelevant for high-growth tech).
Broker-Dealer
Registered intermediary facilitating secondary transactions.
C
Cap Table (Capitalization Table)
Full ownership breakdown of company equity and instruments.
Capital Call
Request by GP for LP capital contribution.
Carry (Carried Interest)
GP performance share, typically 20% of profits above hurdle.
Crossover Investor
Public-market investor participating in late-stage private rounds.
Common Shares
Equity typically held by employees/founders; junior in liquidation.
Co-Sale (Tag-Along)
Right to participate proportionally in a share sale.
Conversion Ratio
Rate at which preferred converts to common.
D
Deal-by-Deal Carry
Carry calculated per investment (American waterfall).
Direct Secondary
One-to-one share transfer between seller and buyer.
Discount to Last Round
Reduction in price relative to most recent primary valuation.
Distribution in Kind (DIK)
Distribution of shares rather than cash.
Drag-Along Rights
Majority holders can force minority holders to sell.
Down Round
Financing priced below prior valuation.
E
Employee Liquidity Program
Company-facilitated secondary sale for employees.
Equity Overhang
Dilutive potential from options and convertibles.
European Waterfall
Carry calculated after entire fund returns capital + hurdle.
Exit Multiple
Implied multiple at IPO or sale relative to entry.
F
Fair Market Value (FMV)
Price at which asset would trade between willing parties.
Fully Diluted Shares
Assumes conversion/exercise of all equity instruments.
Forward Contract (Private Equity)
Agreement to purchase shares at future date.
Founder Shares
Original equity held by founders (usually common).
G
General Partner (GP)
Manager of investment fund.
Growth Equity
Late-stage private investment prior to IPO.
Gross IRR
Return before fees and carry.
H
Hurdle Rate (Preferred Return)
Minimum return LPs receive before carry is paid.
Holding Period
Time between investment and liquidity.
Hybrid Secondary
Transaction combining primary and secondary components.
I
Illiquidity Discount
Price reduction due to inability to freely trade shares.
Information Rights
Contractual right to receive company financials.
Information Asymmetry
Unequal access to material information.
Initial Public Offering (IPO)
Company listing on public exchange.
Internal Rate of Return (IRR)
Annualized time-weighted return.
J
J-Curve
Early negative returns in private funds before exits.
Junior Securities
Equity ranking below preferred in liquidation.
K
Key Man Clause
Fund provision suspending investments if key principals depart.
Know Your Customer (KYC)
Regulatory verification process.
L
Last Round Price
Valuation implied by most recent financing.
Layer 1 (Market Access Layer)
Top-of-funnel layer covering sourcing channels, broker relationships, and initial access to available pre-IPO blocks.
Layer 2 (Information Layer)
Due diligence layer covering issuer materials, financial visibility, cap table checks, and transfer constraints.
Layer 3 (Execution Layer)
Transaction layer covering price negotiation, legal documentation, approvals, and operational settlement.
Layer 4 (Liquidity Layer)
Post-entry layer focused on IPO timing, lock-up planning, secondary exit strategy, and realized return conversion.
Lead Investor
Investor negotiating terms in primary round.
Liquidation Preference
Priority payout to preferred shareholders upon exit.
Lock-Up Period
Post-IPO restriction (commonly 180 days).
Limited Partner (LP)
Investor in private fund.
M
Management Fee
Annual fee (typically 1-2%) paid to GP.
Marketability Discount
Reduction reflecting lack of liquidity.
Material Non-Public Information (MNPI)
Confidential information affecting valuation.
MOIC (Multiple on Invested Capital)
Total proceeds divided by invested capital.
N
NAV (Net Asset Value)
Estimated value of fund holdings minus liabilities.
Non-Participating Preferred
Preferred receives liquidation preference OR converts, not both.
Non-Transferability Clause
Restriction preventing share transfer without approval.
O
Option Pool
Shares reserved for employee equity compensation.
Overhang
Potential dilution from outstanding rights/options.
Offering Memorandum (OM)
Disclosure document for private placement.
P
Participating Preferred
Receives preference plus pro-rata participation.
PIPE (Private Investment in Public Equity)
Private investment in public company.
Placement Fee
Upfront fee to intermediary.
Preferred Shares
Equity with senior economic rights.
Pre-IPO Secondary
Purchase of private shares before IPO.
Pro-Rata Rights
Right to maintain ownership percentage in future rounds.
Private Placement
Securities offering exempt from public registration.
Q
Qualified Purchaser (QP)
Investor meeting higher threshold for 3(c)(7) funds.
Qualified Institutional Buyer (QIB)
Large institutional investor under Rule 144A.
Quota Allocation
Allocated share portion in oversubscribed secondary.
R
Restricted Securities
Privately issued shares with resale limitations.
Right of First Refusal (ROFR)
Right to match third-party offer.
Rule 144
SEC rule governing resale of restricted securities.
Recapitalization
Restructuring of capital structure.
S
Secondary Transaction
Sale of existing shares.
Secondary Fund
Fund specializing in buying private secondary assets.
SPV (Special Purpose Vehicle)
Vehicle aggregating investors into single cap table line.
Subscription Agreement
Legal agreement committing capital.
Securities Act of 1933
Governs private offerings and resale exemptions.
T
Tag-Along Rights
See Co-Sale rights.
Tender Offer
Company-sponsored liquidity event.
Term Sheet
Non-binding summary of transaction terms.
Transfer Restrictions
Contractual limitations on resale.
U
Up-Round
Financing at higher valuation than prior round.
Underwriting Discount (IPO)
Fee paid to banks during IPO.
V
Valuation Cap
Maximum conversion valuation (convertible notes).
Vesting Schedule
Timeline over which equity becomes earned.
Voting Rights
Shareholder governance rights.
W
Waterfall
Distribution hierarchy of proceeds.
Weighted Average Anti-Dilution
Adjusts conversion price based on size/price of down round.
Warrant
Right to purchase shares at set price.
X
XIRR
Extended IRR accounting for irregular cash flows.
Y
Yield to Liquidity
Return expectation based on projected exit date.
Z
Zero/Zero/Zero (0/0/0)
Refers to 0% placement fee, 0% management fee, and 0% carry. Verify no embedded spread, hidden admin costs, or differential share class economics.
Apply for Professional Investment Circle
Apply to join IFED's Professional Investment Circle for structured access to pre-IPO secondary opportunities, institutional deal intelligence, and execution pathways through our SPV framework. Members receive curated transaction flow, market-timing insights, and operational support designed for disciplined allocation in fast-moving U.S. and cross-border environments.
Institutional-Grade Deal Governance
Global GP/LP and Broker Network
Pre-IPO Secondary Access
KYC-Ready Fast Lane Onboarding
Swiss SPV-Based Allocation Infrastructure