5 Questions to Ask Before Running a Secondary SPV
Jul 31, 2025
Gavin Freeman
At a Glance
Secondary SPVs can offer liquidity for early shareholders and access for new investors, but they come with added complexity.
Understanding the seller’s background and motivations can provide valuable context about the opportunity.
Most private companies have transfer restrictions, such as ROFR and board approval. It's important to be aware of the company’s policies before proceeding.
Pricing secondaries involves nuance, including deal history, share class, valuation trends, and available information.
Gauging investor interest early and preparing for quick execution can be useful in making a secondary SPV viable.
Sydecar supports secondary SPVs with infrastructure designed to reduce friction and simplify compliance.
Before you take any concrete steps toward structuring a deal, it’s important to understand who is selling their shares and what is driving their decision. Early employees often look to sell their equity due to liquidity needs, like buying a home or diversifying personal wealth. But if the seller has inside knowledge, such as a slowdown in growth or leadership turnover, that could indicate a more serious concern. Ask the tough questions: Is this a routine liquidity moment, or a signal of deeper concerns? Your investors will want to know why this opportunity exists and what the seller’s motivations mean for the company’s future.
Secondary share sales in private companies are rarely straightforward. Most startups have restrictions on transfers, including a Right of First Refusal (ROFR) that lets the company or its investors match an offer and block the purchase. Additionally, companies often require board or management consent before a transfer can proceed. If you overlook these steps, the deal could fall apart even if you've already raised the capital.
In some cases, an SPV already holding company shares may serve as the vehicle through which your investor SPV purchases ownership. Because your SPV is buying interests in another SPV rather than shares of the company directly, this type of layered SPV transaction typically does not trigger transfer restrictions like a Right of First Refusal (ROFR), which generally applies to direct sales of company stock. However, these arrangements add complexity: now you’re managing two SPVs instead of one, introducing additional legal, tax, and administrative considerations. These structures require careful legal review and may still require company approval depending on the company's definition of a transfer.
Whenever possible, it’s smart to engage with the company early to understand its policies on secondaries and avoid surprises late in the process.
Pricing a secondary deal is one of the hardest parts of running a secondary SPV. A common starting point is the company’s last funding round price, but don’t stop there. Ask:
How long ago was that round? If it’s been more than 18 months, market conditions or company performance may have shifted.
What’s happened since? New partnerships, growth metrics, layoffs, or market shifts could all impact valuation.
What class of stock are you buying? Common stock typically trades at a discount to preferred stock because it lacks liquidation preferences and other rights.
Also, when looking at market comparables, you can:
Check for prior secondary trades in the company on platforms like EquityZen, Forge, or Caplight to see what others paid.
Benchmark against public comps; if peer SaaS companies have dropped 30%, your price should likely reflect that.
Compare the implied valuation to public and private market benchmarks to make sure it aligns with broader market trends.
If you need additional guidance, starting conversations with a few trusted investors is a good next step. Ask them what price they’d find compelling. Pricing a secondary is often a negotiation, so be prepared to go back and forth with the seller.
Finally, this is a great time to document your rationale clearly in your investor memo: explain how you got to the number and why it’s fair given the risks and upside. Transparency builds confidence and helps investors understand what they’re buying.
Even a well-priced deal with company approval can fall apart if you can’t raise capital on the right timeline. Before forming an SPV, consider gauging investor appetite by starting with your most trusted LPs and core network. Gathering early feedback can help clarify how the opportunity is being perceived. Sharing details like who’s selling and why, what price you’re offering relative to the last round, and what makes this secondary unique can give investors the context they need to evaluate participation.
Be prepared for tough questions:
How much visibility do you have into the company’s current performance?
How close is the company to an exit?
Why are you confident this isn’t just a liquidity-driven sale by someone who knows bad news is coming?
You will likely need to explain both the upside (e.g., access to a strong late-stage company at a favorable price) and the risks (e.g., limited information rights, uncertain timeline to liquidity). If there’s enough interest, you can line up soft commitments before launching the SPV. A good rule of thumb: try to have 50–75% of your target amount verbally committed before you finalize the legal and operational work.
Secondary SPVs often move on tight timelines. Sellers want liquidity fast, and other buyers may be circling. To win these deals, you’ll need to quickly and efficiently line up investors, finalize legal documents, and close the transaction. That means having your SPV structure, subscription documents, and investor onboarding processes ready to go. You’ll also need to coordinate approvals from the company and ensure funding timelines match your close date. Platforms like Sydecar help streamline these logistics, but the SPV lead still drives the process. Be prepared for last-minute changes, and keep your investors informed at every step.
The Bottom Line
Secondary SPVs are a powerful way to create liquidity for sellers and generate access for investors, especially when primary fundraising markets are slow. However, they require careful diligence, legal preparation, and nimble, organized execution. Ask these five questions before you start, and you’ll be positioned to run a deal that serves your LPs well.
Curious how Sydecar helps emerging managers move quickly and streamline investor onboarding? Explore Sydecar’s Secondary SPV capabilities, including a self-guided tour of the platform, here:
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