What Is a Secondary Transaction?

A secondary transaction is when someone sells existing shares in a private company to a new buyer. The company isn’t issuing new stock and (in a pure secondary) doesn’t get the money. Secondaries matter because they’re one of the few ways early employees, founders, and early investors can get liquidity before an IPO or acquisition.

The core idea: existing shares change hands

In a primary financing, the company sells newly issued shares (or other newly issued securities) to raise capital. In a secondary, an existing shareholder sells what they already own.

Most people picture secondaries as “cash out” events. That’s basically right, but there’s an important nuance: many real-world deals are mixed, where part of the money goes to the company (primary) and part goes to selling shareholders (secondary). Whether something is “secondary” depends on who the seller is.

How a secondary transaction actually happens

Secondaries in private companies aren’t like selling public stock. They’re negotiated, paperwork-heavy, and usually require company involvement.

• A seller decides to sell (often an employee with vested shares/options, a founder, or an early investor).
• A buyer shows up (an individual investor, a fund, or an SPV buying on behalf of many investors).
• They agree on economics (price, number of shares, what exactly is being sold, closing timing).
• The company often needs to consent to the transfer, and may have contractual rights that affect the deal (this depends on the company’s governing documents and the seller’s agreements).
• The parties sign transfer documents, the company updates its records, and the buyer becomes the new owner.

Why secondaries happen

Secondaries exist because private-company equity can be valuable but extremely illiquid.

• Employees may want liquidity for life reasons (down payment, taxes, diversification) without waiting years for an exit.
• Early investors may want to return capital to their LPs, reduce concentration, or re-underwrite risk after the company has matured.
• Founders may want to take some money off the table, especially after long periods of low or no salary (boards and new investors often have views here).
• New investors may want access to a hot company that isn’t raising a primary round (or want to increase ownership without changing the company’s fundraising plans).

Pricing: there is no “official” secondary price

Secondaries are typically priced by negotiation, not by a live market. Buyers often expect a discount relative to a recent primary round, but there’s no universal rule.

Whether there is a discount (and how large) depends on the facts: the company’s momentum, how much information the buyer gets, the size of the block, transfer restrictions, how long the buyer expects to hold the shares, and whether there are competing buyers.

Also: “last round valuation” can be misleading. Preferred stock terms (like liquidation preferences) can mean the price paid in a primary round doesn’t translate cleanly to the value of common stock in a secondary. If you’re pricing common off a preferred round, you generally want someone who understands the cap table and terms to sanity-check the math.

Company approvals and transfer restrictions (why secondaries can be slow)

Most private-company shares are subject to contractual transfer restrictions. These often come from the company’s charter, bylaws, investor rights agreements, ROFR/co-sale agreements, option exercise agreements, or similar documents. In many cases, the company (and sometimes other investors) has approval rights or purchase rights that can delay, reshape, or block a sale.

Common friction points include:

• Right of first refusal (the company and/or investors may be able to buy the shares before the outside buyer can).
• Company consent requirements for transfers.
• Information rights limits (secondary buyers may get less diligence than primary investors).
• Securities law compliance (offers and sales of securities are regulated; participants typically rely on exemptions and should use counsel).

Using an SPV to buy secondaries

An SPV (special purpose vehicle) can be used to pool multiple buyers into a single purchasing entity, so the seller and the company deal with one buyer on the cap table instead of dozens.

SPVs are often helpful when:

• The seller wants to sell a large block and prefers one counterparty.
• The minimum check size is high for an individual investor.
• The company wants to limit cap table growth.

Whether an SPV is a good fit depends on the company’s transfer rules and the specifics of the deal. (Also, “SPV” describes a structure, not a legal exemption; the securities-law and compliance details are highly fact-specific.)

Primary vs. secondary: the quick comparison

Feature	Primary transaction	Secondary transaction
Seller	The company	An existing shareholder
Where the money goes	To the company	To the selling shareholder (in a pure secondary)
What changes on the cap table	New securities are issued	Ownership transfers from seller to buyer
Dilution	Usually dilutive to existing holders	Not dilutive by itself
When it’s common	Fundraising rounds	Between rounds, late-stage, pre-IPO, or during tender offers

Frequently asked questions

Can I sell my Wefunder investments?

Often, not easily. Private securities usually have transfer restrictions, and there generally isn’t a simple “sell button.” Whether you can sell depends on the specific security and the company’s governing documents, plus whether there’s an available buyer and a compliant process to complete the transfer.

Are secondaries risky?

Yes. You’re typically buying something illiquid, with limited information compared to a public company, and at a price set by negotiation. You should assume you may not be able to sell again for a long time (or ever), and that outcomes can be binary.

How do investors find secondary opportunities?

Most secondaries are sourced through networks: existing shareholders, company-facilitated processes (like tender offers), funds that specialize in secondaries, and SPVs that aggregate demand for a specific purchase.

Bottom line

A secondary transaction is a sale of existing shares from one holder to another. It can create real liquidity in an otherwise illiquid asset class, but it’s rarely simple: pricing is negotiated, company approvals and transfer restrictions are common, and getting the legal details right matters.