An employee decides to sell vested shares in a private company, but discovers there is no public quote showing what those shares are worth. They must find a buyer, satisfy transfer rules, and negotiate terms without the visibility of an exchange. Private-company secondary markets have no order book, continuous price discovery, or standardized process. Each sale is negotiated between a willing seller and a buyer who has done their own diligence. This guide explains the participants, process, and forces behind pricing.
Who buys private shares
Private secondary buyers fit several categories, with distinct goals and return requirements.
Dedicated secondary funds rank among the most active institutional buyers. They raise capital to purchase private-company equity, often pursuing companies at later stages with product-market fit and revenue traction. Full-time deal teams source and price these positions. Their experience and appetite support thorough company diligence and relatively efficient closings.
Family offices are an important buyer group, especially for late-stage companies in established sectors. A family office with substantial private wealth may put part of its portfolio into pre-IPO secondary opportunities it has tracked closely. Unlike dedicated secondary funds, these offices tend to be selective, choosing companies they know well and can hold confidently until an exit event.
Direct platforms and brokers connect individual accredited investors with sellers. They collect buyer interest, show indicative bids for familiar company names, and organize the transaction. Completed trades typically carry a transaction fee of 3 to 6 percent of transaction value, depending on the platform.
Sometimes existing investors or the company exercise rights of first refusal, buying the seller's shares instead of admitting a new third party to the cap table. This occurs more often earlier, when companies guard cap table composition more closely.
How a secondary sale works
Usually, the seller first contacts a known buyer or a secondary broker. The discussion covers the company name, share class, number of shares, approximate vesting status, and whether the seller has checked the shareholder agreement for transfer restrictions.
Using those initial details, the buyer gives an indicative bid per share, a non-binding estimate subject to more diligence. They commonly request cap table data, if available, public information on the company's financial condition, and confirmation of the share class plus its rights or restrictions.
Diligence can move the bid higher or lower. After negotiation produces a proposed price, the seller informs the company. Most shareholder agreements require notice and let existing investors or the company match the buyer's price through a right of first refusal. The ROFR period typically lasts 10 to 30 days, depending on the agreement.
When no existing party exercises the ROFR, the parties document the sale. They execute a stock purchase agreement, and the company revises its cap table for the transfer. A straightforward deal may take four to eight weeks from first contact to closing, with longer delays possible when the ROFR is complicated or transfer approval requirements cause friction.
What sets the price
The price reflects the buyer's view of current market value for your share class, adjusted for return requirements, expected holding period, and transaction-specific risks.
Buyers' strongest reference is recent secondary transaction data from comparable companies at the same sector and stage. Current data can anchor bids firmly. Without it, buyers use funding round multiple analysis, liquidation preference discounts, and public comparable market multiples.
Many first-time sellers miss that a bid reflects the buyer's required return, not only a neutral valuation. A secondary fund buying pre-IPO equity generally targets a specific internal rate of return on invested capital. If it expects an exit at a particular value in three to four years, it works backward from that value and its required return to calculate today's price. In a rising market with compressed timelines, bids may seem higher than expected. In a declining or uncertain market, they may come in below expectations relative to round valuations.
Before receiving an offer, obtain an independent reference price. Without that anchor, you depend entirely on the buyer's account of what is fair.
Restrictions and complications
Right of first refusal is the leading cause of delays and occasional failures. An existing investor with deep pockets can match the buyer's price, giving the seller liquidity but taking away control over the shares' eventual holder. Worse, investors may signal they will exercise ROFR and then slow the process, extending the timeline well past expectations.
Board approval rules differ by company. Some require board consent for every secondary transfer; others use a simple administrative review. Read the shareholder agreement first to identify required approvals and understand how long they usually take in practice.
Your grant agreement may impose additional transfer restrictions, especially on recently exercised options or shares with a remaining repurchase right. Have a qualified attorney review these terms before starting a secondary sale.
The information gap
A basic feature of the private secondary market is that buyers know more than sellers about current market clearing levels. Funds and platforms completing multiple transactions per month see what comparable positions are clearing across their deal pipeline in real time. Most individual sellers begin without that view.
An independent secondary market price estimate is the clearest way to narrow this gap. We are not saying it guarantees a higher price. We are saying it gives a shareholder with vested equity in a private software company a reasoned basis to assess an offer, challenge it where warranted, or walk away if no buyer reaches a reasonable threshold.
Important: AI outputs here are informational tools only, not investment advice or formal appraisals. Private-market transactions carry risks including illiquidity, price uncertainty, and loss of capital. Review your shareholder agreement and consult qualified financial and legal advisors before transaction decisions.